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By Laura T. Coffey
TODAY contributor
updated 3/7/2008 12:38:55 PM ET 2008-03-07T17:38:55

The dreaded “R” word – recession – has been dominating business headlines for months now. More and more economists are predicting bleak economic conditions and weak job growth in the coming months.

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On Friday, it was reported that employers slashed 63,000 jobs in February, the most in five years. Do you need any more signs that we are teetering on the verge of recession?

Even if you feel secure in your job at this moment in time, here’s a sobering thought: Because of forces beyond your control, you could be hit with an unexpected layoff at almost any moment.

For this reason, it’s always a good idea to plan ahead for potential financial emergencies before they strike. The following tips can help.

1. Establish an emergency fund. Set aside enough money to cover your basic living expenses for three to six months. This should give you the ability to pay your rent or mortgage, buy food and repay debts. Consider socking this money away in an online-only, high-yield money market account or a short-term certificate of deposit. For more details about how to choose such an account and earn more interest on your dough, read this past “10 Tips” column   on the subject.

2. Live within your means. Try hard not to spend excessively on items and services you don’t truly need. This will make it even easier to build up that emergency fund once and for all. For additional ideas about how to establish an emergency fund, this past “10 Tips” column about how many middle-class families are being squeezed financially could be of help to you.

3. Use credit cards with great caution. Especially if you have a hunch that a layoff might be looming, be extra careful with credit. A credit card can keep you in denial about your true financial situation. Accumulating debt will only add to your stress – and you don’t need any more stress, whether you lose your job or not.

4. Talk about money with your partner. Even when things are going well, it’s common for one partner to be completely unaware that the other partner has different financial priorities and goals. A layoff – or the specter of a layoff – can put the spotlight on such differences and lead to terrible fights. To avoid this, talk honestly and set goals together about how to cope in the coming weeks and months.

5. Tackle high-interest debt. Before a layoff ever strikes, make sure you’re not letting debt hang around for months on a high-interest credit card. Transfer that debt to cards with lower interest rates, or consider paying it off with money from a small closed-end loan from your bank or credit union. Then over the next three months or so, you can concentrate on paying back that lower-interest loan.

6. Network, network, network. Always make a point of getting to know as many people as you can in your line of work. By having plenty of friends and contacts in your industry, you’ll stand a better chance of finding work quickly if you lose your job.

7. Line up a line of credit while you’re still employed. If you own a home and you can see that a job loss might be coming, consider opening a home-equity line of credit and keeping it open. Don’t tap into the line of credit at all; just know that it’s there in case a real emergency hits. Some lenders – but not all – charge an annual maintenance fee in the $75 to $100 range for keeping a line of credit open, but that can be worth it for the peace-of-mind factor.

8. Pursue disability coverage before you lose your job. Personal disability coverage is an important thing to have – and it’s also important to secure coverage based on your current level of income. Apply for such coverage while your income is at its highest. This would involve supplementing the group coverage you may have through your job with individual coverage. If you buy additional coverage on your own, you can take it with you when you change jobs, and it will be tax-free. Comprehensive disability coverage can be very costly, but you can find accident-only disability policies for as little as $25 a month. At least you’d have that much coverage during a bout of unemployment; once you get back on your feet, you could make sure you have disability insurance that covers both accidents and illnesses. For more details about individual disability coverage, visit this About Disability Insurance site and this Insurance Information Institute site.

9. Pursue higher education while you can. Do you work for a large company that offers a “Corporate U,” or for an employer that helps cover education costs at schools in your area? Tap into that resource so you can improve your skills and bolster your resume. Hundreds of corporate university classes have been accredited, meaning you could get college credit for them if you ever enroll in a degree program.

10. Investigate your health insurance policy. Be clear on what your health plan covers, and figure out how much it would cost to extend your employer’s group insurance coverage through the federal program COBRA. Be aware that you would have to pay both the employer and employee shares of the premiums – ouch – but at least you’d get to keep the same coverage.

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