Most Americans won't be laid off. Of the unlucky few, most will find a new job fast.
Still, you never know when the moving finger might tap you on the shoulder. If not a layoff, some other emergency might turn up. An auto accident. A medical problem. Slow-paying clients, if you're self-employed.
That's why planners always advise you to keep a cushion of quick cash. You don't want to have to murder your credit lines to pay essential bills.
If you think of this as layoff planning, so be it. It can help you through any tough situation that comes alone. Some tips:
Save money. You should be able to get through at least three months without pay. Six months would be better. Nine months, if you're self-employed. So go over your budget and figure out how to save more.
Understand your priorities. People are often confused about where to put the limited sums they can save. So I polled some planners and developed with them the following consensus:
1 -- Build an emergency cash fund.
2 -- If you have high-rate credit cards, build a more modest cash fund -- say, worth just six week's pay. During that period, pay the minimum on the cards. Cash is always a priority, even before making faster payments on your card, says planner Irving Holzberg of Menlo Park, Calif.
Once you have some savings, focus on reducing credit-card debt. But continue to contribute something to your savings account, developing a savings habit. When your debt is under control, build your cash to a higher level.
3 -- If you have a 401(k) and your employer matches the money you put in, you'd normally want to contribute at least enough to earn the maximum match. But if you have no emergency cash, save the money now -- even if that means reducing your 401(k) contributions for a while.
Manage your debt. Don't prepay lower-cost debt such as student loans and mortgages until you have the rest of your money under control. Building cash comes first.
Next, pay off high-cost credit-card debt. Then, raise to the maximum the sum you contribute to retirement savings. After that, you might think about prepaying low-cost loans.
But be sure to make every loan payment on time. Student-loan debt shows on your credit history, just as mortgages do.
When you leave a job, don't use your savings or severance pay to get out of debt -- even high-cost credit-card debt. Make only the minimum payments until you're back on a payroll again.
Manage your health benefits. If you're laid off, COBRA rules let you keep your group health plan for 18 months, at your expense, if your company employs 20 people or more. You have to apply within 60 days of termination.
Working couples, however, will probably find it cheaper to buy family coverage under the spouse's plan. Just be sure that the plan covers the recurrence of any past illness.
Some employers offer "medical expense" plans. You contribute pretax money from every paycheck and use the plan to cover certain medical bills.
If you're leaving your job, submit every one of those medical bills, says planner Peg Downey of Silver Spring, Md. You're covered up to the full amount you intended to put in the plan all year. It doesn't matter that your actual contributions were cut short. You can receive more than you put in (although some employers may take the excess payment out of your final check).
Leave your retirement funds alone. When you end a job, don't take any cash out of your 401(k), even if the amount is small. Withdrawals cost you taxes and maybe a 10 percent penalty. You also lose the valuable tax deferral.
If your layoff lasts too long, you might need some of your retirement money to help pay bills. But draw only a small amount each month.
You cannot replace money taken out of a retirement account. But as soon as you're working again, put what's left of this account under mental lock and key.