Expect the Unexpected: Get Ready for Sudden Job Loss
By: Jeff Brown

NEW YORK (BankingMyWay) — It seems like we're never really secure. Though the economy is improving and the overall rate of layoffs is falling, Microsoft just announced it is slashing 18,000 jobs, or 14% of its workforce.

The cuts are related to Microsoft's purchase of cellphone maker Nokia, which has had its share of problems. So it would be easy to pass this off as one of those things that means nothing to the rest of us. But since mergers happen in good times as well as bad, and are often driven by the prospect of job-killing "efficiencies," the Microsoft case stands as an object lesson: Even in the best of times, your employment is never completely safe.

So how does a savvy worker prepare for a job loss that comes from nowhere?

Having a rainy-day fund is key, of course. Most experts think it should contain enough cash for six to 12 months of expenses. It needs to be easily accessible in a checking, savings or money market account. For a little more interest earnings, you could stash some is three- or six-month certificates of deposit. But those pay so little interest these days it's hardly worth the trouble.

Key to preparing for the worst is to minimize fixed expenses — those monthly costs you cannot trim, such as a big mortgage or car payment. Stretching to own the most expensive home you can afford also means big fixed expenses for property taxes, homeowners insurance and heating.

To gird for trouble, also think about setting up lines of credit; most lines of borrowing would probably be impossible after you becoming unemployed. A home equity line of credit, or HELOC, would allow you to borrow as little of as much as you need up to a given limit, and you'd pay no interest until you start tapping the account. But you must set it up while you have a job.

Having credit cards can be a lifesaver in an emergency, but if unemployment drags on, card debt can snowball into a crushing load. So it's wise to get a couple of cards approved while you can — while employed — but to be very conservative about using them. Don't get too many or you'll damage your credit score.

Homeowners 62 and over can also look into a reverse mortgage, which is a loan against the equity in the home. These are especially attractive because you can qualify even after you lose your job. That's because there are no monthly payments on a reverse mortgage. Instead, the debt is paid from the proceeds of a home sale after the homeowner moves or dies. Fees can be high, so a reverse mortgage is probably best left until there's no good alternative.

Because life is uncertain, spouses or live-in partners should think carefully before going from two incomes to one. And it can pay to build a sideline, doing some freelancing or operating a part-time home-based business that could be throttled up if the day job disappears.

Social networks offer a safety net as well. With Facebook, Twitter, LinkedIn and other services, you can keep in touch with former colleagues and classmates who might help out if you're suddenly in a job hunt.

No precaution is perfect, but luck does favor the prepared. Workers who can weather a period of unemployment are better able to hold out for a new job they really want, rather feeling compelled to grab the first thing that comes along.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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