How to Prepare Financially if Your Company Is Downsizing

If you think your company will be downsizing in the near future, you need to be prepared. Take some control into your hands now and make sure your finances are in order in case you are downsized later.

Get Your Financial House in Order

Now is the time for you to prepare for possible layoffs–not after you have been let go from the company. Take the following steps to ease any abrupt transitions in the future. Even if you end up keeping your job, you will be better off financially for these actions:

• Establish an emergency fund of three to six months expenses (or more). This fund should be liquid and easily accessible. A money market fund or bank savings account is a possible place to build this emergency fund. Bankrate.com offers tips on building an emergency fund.

• Pay down or pay off debt as soon as possible.

• Track your spending at home, so that your expenses do not exceed your income. Software offered by Quicken allows you to customize expense categories for your household.

• Track spending at home so that your expenses do not exceed your income. Avoid incurring any new debt. Now is not the time to increase debt load.

• Find out whether any of your bills are legally deferrable in the event of a layoff. Student loans, for example, might be deferred if you lose your job.

Educate Yourself Now Regarding Potential Financial Benefits

If laid off, you will have plenty to deal with. The more you can put into place now, the better off you will be should you be the victim of downsizing. Save yourself future stress by understanding financial benefits, such as health insurance, severance packages, and unemployment that may be available should you be laid off.

Health insurance and COBRA. The Consolidated Omnibus Budget Reconciliation Act (COBRA) (see the United States Department of Labor website for an explanation) allows you to continue to purchase health insurance from your company if you get laid off. However, COBRA costs are often much higher than premiums you pay on the job. Find out the following:

• If you are laid off, when do company premiums end and when does COBRA begin?
• What steps do you need to take through your company’s human resources department to smoothly transition into COBRA coverage?
• Can you afford COBRA premiums? If not, start researching other options.

401(k). If you have contributed to a company 401(k) plan (or equivalent plan in a non-profit organization), find out what your options are, before you are laid off. You may need to consider the following:

• Have you been with the company long enough to be vested?
• Has the company matched any of your contributions, and are you entitled to the matching funds if laid off?
• If you take the money in a lump sum, what amount of penalties and taxes becomes your responsibility?
• What are options for rolling over the 401(k), tax free, into an IRA?

Your human resources department should be able to help with questions about your 401(k).

Unemployment benefits. You may be eligible for unemployment benefits if laid off. Begin now to find out how to set this up, should you lose your job. These benefits may vary by state. Start by working with your human resources office and the relevant state offices.

Severance package. Companies will often offer a severance package for a release by the employee against the employer.  This is often negotiable, and you should attempt to get a mutual release of liability.

Use Your Benefits Now While You Still Have Them

It is easy to take job benefits for granted while they are still in place. Make the most of your benefits while you still have a job. Depending upon your benefits and your financial situation, these could include:

• Schedule covered dental work now.

• Schedule medical tests, eye appointments, or doctor visits now.

• Make use of covered mental health benefits now, such as counseling.

• Utilize career-counseling resources available to you through your employer.

• Maximize contributions to your 401(k) while you are still with the employer.

• Take part in other benefits your company offers that could benefit you financially–networking events, professional memberships, and more.

These actions could save you money in the future.

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