Hedging Options for the Pink Slip By Bernice Wilson, Ph.D.

Because the economy is slow and not making a big bounce into recovery, layoffs may be coming in the near future. Unemployment is rising; therefore workers in many regions and factions need to brace themselves for pink slips. Have you thought about what you can do to prepare for an uncertain layoff? These timely tips can help you prepare for such an event.

• Prepare a written budget.
  A budget will help you see where your money is going.
• Get rid of debt.
  Any debt (high interest credit cards) other than a mortgage and car payment could be a problem while you're unemployed.
• Build a cash reserve.
  You should consider building a cash reserve that will cover your expenses for 3 to 6 months.
• Cut expenses.
  Cutting expenses frees up cash to pay off some of your debt and to create an emergency fund. Look at what expenses you could do without or reduce if you become unemployed. Do not try to maintain your employment lifestyle by using your credit cards, dipping into retirement savings, or running through your lump-sum severance package.
• Get a line of credit.
  Try establishing a line of credit with a financial institution while you have a job. You will not be able to get one if you lose your job. Warning, consider this very carefully because big risks are involved here such as the loss of your home. In other words, consider all your options before you use your home as collateral for a loan. Be sure to keep up the monthly payments if you should have to use your line of credit.
• Begin to search for a job.
  Look at all available employment opportunities at other firms or job possibilities with your current employer.
• Negotiate an exit package.
  If the pink slip arrives, you may be eligible for a severance package. For example, you may be offered a lump sum or a salary continuation package that includes health care coverage or retirement benefits that are offered beyond severance. Try to negotiate a stronger exit package than the one being given. Get professional financial help if needed.
• Continue health insurance.
  It is unwise to do without health insurance. If the health coverage is not a part of the exit package, ask your employer to let you continue your health coverage under COBRA (Consolidated Omnibus Budget Reconciliation Act). This is a federal law that requires many employers to allow unemployed workers to continue group coverage up to 18 months as long as the worker pays the premiums.
• Don't count on unemployment insurance.
  Unemployment benefits will not begin to make up for your lost wages, although every little bit helps. Keep in mind when calculating your post-layoff income that unemployment insurance income is taxable and it is only available for a short time.
• Don't touch your retirement funds.
  Try to avoid borrowing or withdrawing funds from your retirement account, or spending lump-sum retirement buyouts from your former employer. Your layoff situation may be temporary, but retirement is not. Pulling funds out early could cost a lot in taxes, penalties and lost growth opportunities.

While the economy is in slow growth, you may face a layoff. If you are financially prepared, then you will weather a layoff and place yourself in a position to avoid accepting an undesirable job.