Coping with a layoff

As of October, the national unemployment rate in the United States is 6.5%. And of those unemployed, one in five have been out of work for more than 27 weeks. So how are you feeling? Are you sitting fat and happy in a plush government job or working on on a sexy, profitable project? Or are you watching your co-workers resign one-by-one or -- even worse -- get laid off in large groups? If you are in any way starting to get a little nervous about losing your job, be proactive! Prepare yourself financially and do whatever you can to keep yourself on the payroll and out of jeopardy. Here are some tips:

1. Prepare your finances
If you're anticipating a layoff, you'll need to do all that you can to make sure that you've got cash in the bank that can cover several months' worth of expenses -- let's say six or seven. Once you've accumulated a pile of green, between unemployment and your savings, you'll be sitting pretty while you look for another job. If you already have that money sitting in the bank, you're clearly a financially responsible person and should probably be visiting Edward Jones instead taking advice from the likes of me.

The easiest way to start saving a bunch of cash is to start living (and spending) like you are unemployed while you are still employed. And do it to a degree equal to that which you're anticipating a job loss. The specifics of determining the likelihood of getting laid off will vary greatly, as anyone that isn't on a contract can be let go at any time, regardless of how long they've been employed, their seniority, etc. But trust your gut here -- though many people are caught off-guard, many more get "that feeling" when they might be in trouble.

So if the future of your current job is very uncertain, fix your budget to ensure that you and your family are as cash-rich as possible. Be sure to consider and adjust two dimensions of your finances: where you're spending and where you're saving.

As far as spending is concerned, start with the big stuff and then work your way down. Postpone your expensive vacation if it isn't already paid for. Don't overdo it with Christmas gifts. Hold off on the HDTV purchase. Delay any of your plans to spend a lot of money on anything non-critical until you're assured of your job security -- whether that assurance comes from your old boss or a new one.

Once you've abandoned the notions to spend lots of money, look at the little things. Start shopping at Walmart instead of Whole Foods (believe me, I know that's difficult for some of you). Downgrade your TV service. Put XM or Sirius on hold and stop going to coffee shops. These little things may seem obvious, but they're important. Look at all of the ways that you spend money, analyzing each one to come up with a method to reduce your spending. You won't always have to live like this, but spending like you're penniless while you're still enjoying a paycheck is critical to accumulate the cash you'll need to stay afloat after a layoff.

After your spending is reduced, it is then important to to analyze where you're saving your money. Why? Because bracing yourself for a layoff is all about liquidity -- ensuring your money can be accessed at the drop of a hat. Cash is the most liquid asset. Your home and specialized savings accounts are much less liquid because a lot more is involved in turning them into groceries or money that can pay bills.

Depending on the degree to which you're concerned about a layoff, consider cutting the amounts that you regularly contribute to a retirement or college savings account. Contact your HR representative and ask about reducing your contributions to your 401(k) -- most let you do that quite easily. Once you're back in the saddle, bring your contributions back to a normal level. But if you're short on cash -- especially during uneasy times -- it's better to have that money in-hand than put away for retirement (again, liquidity). But be careful: If you're going to take money from your retirement, it's much better to simply stop or reduce your future contributions. Don't cash out the money that's already in your 401(k) -- you'll end up paying through the nose with taxes and a 10% penalty.

If you're paying off an auto loan or a mortgage early, pat yourself on the back, but take a breather while you're building your reserves. Once you're assured of your current job security or find a new employer, you can play catch-up with all of the cash you've got laying around. And I hate to say it, but if you've got lots of credit card debt and are facing a likely layoff, I would rather see you with enough cash in the bank to pay the minimum payments on those cards if their balances is greater than your bank account balances. Though it's not ideal to pay interest for a few months, it's better than destroying your credit.

Finally, be careful when anticipating a severance package at your current job. Don't take anything for granted unless it's in writing. All too often people underestimate the impact of a potential layoff because they wrongfully believe their company will provide a severance or separation package. Unless it's already in ink, do yourself a favor and don't rely on it.

2. Step up at work
Aside from getting your personal finances together, be sure to perform at your absolute best at work. If only a few positions are being eliminated, don't give your boss a reason to let you be one of those that is let go. Be outstanding, proactive, and flexible. A good friend of mine works for a major newspaper and was able to avoid getting laid off along with many of his ex-coworkers by doing these three things. The paper was moving in a new direction, and he proactively came up with new ideas for how he could support the new model. The new model would require him to perform many different duties (moving from print to the web) which he accepted with enthusiasm the a promise of his flexibility. And because he wanted to stand out, instead of sucking up, he always did outstanding work.

If you still get laid off, you'll maximize the amount of time you can get by without a paycheck by adjusting your finances. Stay on top of receiving your unemployment benefits. While you're looking for a new job, have an intelligent friend proofread your resumes and make sure you customize it for each position. Never miss an opportunity to apply for a job. Write down all of the companies in your city that are hiring and check their websites every day. And don't forget to browse Craigslist's Jobs section!

Also, don't neglect networking. Accept every dinner invitation, attend local alumni and professional events, and volunteer wherever you can. Most jobs are given to people with connections, and by leaving no social or professional stone unturned, you'll improve your chances of meeting your career's benefactor. This is also the perfect time to reconnect with old friends and coworkers.

Have you had experience with getting laid off recently? How have you prepared yourself? How well would your finances stand if you were laid off today?