No matter what your current situation, it is always a good idea to build a cushion in case of job loss. Planning for worst case scenarios can make them a lot less painful if they actually come to pass. Even if times are good at your employer, take advantage of the opportunity to develop your financial plan for a rainy day:
Build that emergency fund: If you don’t have 3-6 months worth of living expenses already saved in an interest-bearing account for emergencies, start socking it away. Try to find an account with an automatic deposit feature so you never have to worry about missing a week of savings. And make this account separate from any other savings or investment account. Wondering where you’ll find that extra money? Start tracking your spending and you may readily notice areas where you can economize.
Slash your high-interest debt: While you can, cut your spending so you can eliminate credit card, auto and home equity debt – these are the kinds of debt that are particularly punishing if you’re out of work. The sooner you can learn to manage debt and use it only for reasonable purposes, the sooner you’ll be on your way to a savings and investment cushion that will protect you in good times and bad.
Keep networking: It’s always a good idea to get to know your peers in the city or town where you work. It’s particularly wise to make the time to network while you’re still employed because you might get the lead on your next job well in advance of the time when you may need it. The money you spend on membership in a group or association key to your industry may be the best money you’ve ever spent. Plus, it may be tax-deductible.
Get a line of credit while you’re still working: If you own a home, and you are fortunate enough to still have some equity, consider taking out a home equity line of credit and vow never to touch it unless you run into a serious cash flow problem if you lose your job. If you don’t touch it, it won’t cost you anything. Make sure you apply for the line while you’re still working – lenders want to see that steady salary.
Apply for disability coverage while you’re still working: Personal disability coverage is increasingly important as companies continue to pare benefits. Group disability coverage can be threadbare if you have a lengthy illness or disability. Plus, it makes sense to buy personal disability coverage based on your current income. You won’t be able to buy as much if your income goes down.
This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Meritage Wealth Advisory, a local member of FPA.