Most companies had cut down their staff drastically during the economic recession. Some of my friends, and millions of other Americans, learn the hard way that being fired is a nightmare that can come true without warning.
It is even worse when you have not planned for the possibility of being fired and are caught off guard, as losing your job can easily lead to a financial disaster. The good news is that by following some simple tips, you can minimize the negative financial impact of a layoff, and start afresh.
Your biggest support after a layoff would be your own savings. Government benefits or support from family and friends would be secondary. You might be eligible for state unemployment benefit, but you would get these only for a few weeks and it would just be a small percentage of what you used to earn.
Build an emergency fund
Therefore, it is important that you save enough for supporting yourself and your family in such an emergency. I save around one-fifth of my income and distribute it between my retirement fund and an emergency fund. You should put enough money to last you at least a few months in an account that will be easily accessible. I keep building my emergency fund through savings every year, and the fund would cover our expenses for at least 6-8 months if I lose my job.
Keep your debts low
Try to keep your debts low and savings high. Do not become dependent on credit cards, as high interest credit card debt could get you in trouble when you are unemployed. It would be difficult to make even basic payments like rent or mortgage when you are out of your job, and the last thing you would want is dealing with credit card debt.
Minimize fixed expenses
Keep your fixed monthly expenses low, as you would not be able to reduce them when you lose your income. Bills for various utilities such as gas, electricity, internet and cable should not be more than 30% of your income. After including expenses for mortgage and living costs like groceries, your average expenditure must be less than half of your income.
Needless to say that other than managing your finances, you should keep your resume updated and work sincerely in order to avoid layoff. Companies have to take extraordinary steps to survive a recession, but the best employees are always the last to be laid off.