Preparing for a Possible Layoff

Are you afraid that you might be laid off from you job? You can take steps now that will make it easier for you and your family if that happens.

How long would your money last if you lost your job? Add up how much you spend in a month. Then, add up the money that you have on hand in your checking and savings accounts. You may also have savings bonds, CDs at the bank, or a money market account. How many months would these funds support you? The average job search lasts about three months. If you don't have enough money for that long, make a plan. It might keep you from losing your apartment or house.

Make a list of the expenses that you could cut. Do you go out to eat, or get take-out food? Do you hire someone to mow the yard or clean the house? Do you dry clean lots of clothes? Decide what you could live without, such as cable channels, magazines, or having your nails done.

What other sources of money could you tap into if your own money ran out? Could you get money by having a yard sale, selling old clothing at a resale shop, or selling investments? Have you loaned money to others who have not yet paid you back? Is your credit card at the limit, or do you have available credit that you could use as a last resort? Do you have a home equity line of credit?

If you have a retirement plan at work, you might be tempted to use that money during a layoff. That should truly be a last resort. If you use money from a 401(k) plan, IRA, or other retirement plan, you will have to pay income tax on all of the money. You will also probably owe a 10 percent penalty. If you had $5,000 in the account, you might only end up with $2,950, after you pay the penalty. That is a very expensive way to get money.

If your spouse works, there may be some ways to increase his take-home pay. If your mate is putting money in a 401 (k) or other retirement plan, he might stop. This would be better than taking money out of a retirement plan, since that involves tax penalty. Your spouse might fill out a new W-4 form to reduce the tax taken from the paycheck. Beware that you generally must have paid at least 90 percent of what you end up owing in taxes (through payroll withholding or estimated tax payments), or 100 percent of the amount you owed in the previous year, to avoid IRS penalties.

Try to increase your savings so you will be able to handle several months without income. Pay off your credit cards, so that you will not have those payments to make while you aren't working, and so that the credit line will be available to you, if necessary. You will also benefit by learning to live within your means rather than beyond them. Build up your savings. Ideally, you should have funds to cover at least three months of expenses. Put off new purchases, especially ones that would add debt, such as a new car purchase, an expensive vacation, or remodeling your home.

Prepared by Karen Chan, Extension Educator, Consumer and Family Economics, University of Illinois Extension, Chicago Extension Center.

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