Preparing Financially for a Layoff.

• Position: Brief Article

Headlines workers haven't seen much in recent years are proclaiming layoffs, tens of thousands in some cases. Unemployment is at a two-year high, and, even though the overall employment is still strong, the economy is slowing and workers in a number of sectors are bracing themselves for pink slips. What can you do to prepare for a possible layoff, and what should you do if it arrives? The Financial Planning Association offers the following tips:

Prepare a written budget. This clarifies your cash-flow situation and helps you with the strategies below.

Dump debt. Extra debt beyond a home mortgage and perhaps car payments can weigh very heavily if you are laid off, especially high-interest credit card debt. Pay off as much of it as you can while you still have a job.

Build a cash reserve. Ideally, you already have an emergency fund in place for just this sort of possibility, preferably with at least three to six months of cash to cover barebones expenses. If you don't have such a fund or it is not well-funded, put cash in it now while you can afford to.

Cut expenses so as to free up the cash to pay off extra debt, add to the emergency fund, and perhaps even test run a bare-bones budget in the event you are laid off. Tighten your financial hatches as much as possible. Look at what expenses you could do without or reduce if you were to become unemployed, such as entertainment (do you really need the premium channel cable service?), clothing, and meals out. A number of unemployed workers unwisely try to maintain their employment lifestyle, often by piling up credit card debt, dipping into retirement savings, or running through their lump-sum severance package.

Get a line of credit, say with your bank, while you still have a job. You won't get it once you are unemployed. Don't touch the credit unless you absolutely need to, but it may come in handy while you are looking for work. A home equity line of credit would likely be less expensive than one from a bank, and you would get tax deductions for the interest. Just be sure you can keep up with the monthly payments you incur, since you are putting your home at risk.

Start scouting for jobs. This includes not only outside firms, but positions that may be available inside the company. As odd...