When your Job is on the Line

Racine Journal Times / May 2007

In today’s highly competitive environment, job changes happen more frequently than ever. Practically every week we hear of another major company announcing a restructuring plan often consisting of layoffs. Technology, communications and transportation -- while making our world smaller and flatter-- is increasing the speed that jobs are created and dismantled. It is imperative that individuals have a plan to adapt to the changing employment environment.

Be Prepared

Being prepared for inevitable life transitions is always recommended – not just career transitions. Career transitions have unique characteristics requiring special attention. Especially since many times this transition can come with little warning.

Emergency cash reserves and lines of credit are the life lines during a career transition. These should amount to three to six months of your fixed expenses. Additionally, I recommend the next investment after funding the emergency reserve is to build up a career asset working capital fund.

Career Asset Working Capital Fund

Working capital for the career asset has three parts -- funding skill set maintenance and development (lifelong learning), funding job changes and funding career sabbaticals. The working capital for the career asset should be viewed separately from the personal or family emergency cash reserves. The total amount of this fund is dependant on your type of career, risk and frequency of job change and life transitions you face in the future. Your financial planner can assist you in calculating an appropriate amount.

Be Observant

Watch for the warning signs of a pending layoff. These include hiring freezes, (by department or company-wide), negative analyst reports and management or ownership change. Companies with new management are under the gun to improve productivity and/or cut expenses. Often times management accomplishes reorganization cuts by hiring outside consultants. The two Bobs from the movie “Office Space” are comical examples of how some companies handle the not-so-funny lay-off process.

Pay close attention to technology changes that may impact your company or industry. Your best strategy for handling technological obsolescence is to adopt a habit of lifelong learning – become the best you can be and keep informed on the opportunities and threats to your job. While this strategy may not protect your job with your present employer, it does both provide you with early warning signs and position you well for your next job.

If your observations point to an inevitable layoff, it is best to proactively seek your next job while still employed. This may mean that you will need to hire a career counselor to assist you in resume preparation, employment interviewing and job negotiating rather than using a company provided outplacement service after you are terminated.

Blind-Sided Layoff

Below are the financial steps to take if you find yourself suddenly unemployed.

First, apply for unemployment immediately. By delaying filing, you may miss out collecting benefits for which you are eligible.

Second, proactively contact your creditors notifying them of your employment situation and plan of action to acquire employment. Inquire as to the minimum payment you need to make on outstanding credit. Do not pay off the debt any sooner than absolutely necessary -- cash and lines of credit are king when you are unemployed.

Third, prepare a survival budget with expenses ranked in order of importance, e.g. mortgage payment and groceries before vacation and entertainment. This budget should include only the bare necessities and minimum payments required by creditors. Compare this to your budget that you had before the job loss. There should be a significant difference as your employment budget would have included savings, vehicle replacement and home maintenance and repair. . Be sure to identify all sources of available income during unemployment. This includes unemployment compensation, family maintenance, and any other potential income sources including part-time or independent contract work.

Fourth, prepare a net worth statement, paying close attention to liquid assets (including the recommended career asset working capital fund) and available lines of credit. It is this liquidity that will cover your survival budget shortfall. Calculate how many months of your survival budget shortfall are covered by your liquid assets and credit lines. You now have your timeline to find employment before you have to make drastic financial changes.

Job loss is never easy. By having a plan, you can minimize the stress. The time to prepare your plan is now while you are employed.