Can You Afford to Lose Your Job?

While it is certainly not something that most people want to think about, it is important to determine how you would manage in the event that you found yourself out of work. If you have been able to manage your finances wisely, you will be better able to cope, should you lose your job.

The

key to staying afloat after a job loss is preparing well in advance. Start by assessing your financial situation. Get an overview of your financial picture by listing your income, expenses, investments and savings. Then separate the essentials from the discretionary expenses so you can determine which expenses you could eliminate.

Next, consider the liquidity of your assets. Which investments could you cash in if you had to without significant penalties? Your goal is to determine how much money you could transfer from other areas into a bank account or money market to cover your most significant expenses. Factor in severance pay (find out the policy of your company) and include the amount you would receive from unemployment insurance. In addition, find out what your COBRA payments would be for continuing your health insurance.

Once you get an overview of your financial picture, you will be able to determine what you need to do to prepare in case such a situation should occur. Here are some suggestions of actions you might take:

1. Build up a six-month reserve or "emergency fund" to cover your expenses. This will take some pressure off by allowing you to use your severance pay first and then move to this money should you remain unemployed.

2. List the non-essentials you could cut, such as the gym membership you rarely use.

3. No matter how comfortable you are at your job, it never hurts to keep an eye out for other possibilities. Know what companies might hire someone in your position and maintain a contact list in case you wanted to do consulting work.

4. Consider additional means of income. It’s advantageous knowing that there may be other means of making some money that do not include selling your home. For instance, you can sell your stamp collection or draw on a skill that you may not use in your current position.

5. Try to maintain a good credit rating by paying bills on time. If you are in debt, work hard to get out of it. This way, should you lose your job and need to ask the orthodontist if you can delay payment on your daughter’s braces for a few months, you will generally evoke a positive response.

In short, the answer to whether or not you can afford to lose your job is based on how you are currently handling the possibilities of such an event. Never assume it can’t happen to you. If you prepare in advance, save up some money in reserve (not including your retirement fund) and maintain a good credit rating, you will be able to get by if you need to.