How to row your financial lifeboat


Commentary: Reset priorities if a job loss looms

By Chuck Jaffe, MarketWatch

Last Update: 3:05 PM ET Oct 5, 2012

BOSTON (MarketWatch) My friend Steve called me earlier this week; he had time on his hands, as he was spending the week on furlough from his job.

The move saved his job, but also scared him to the point that he had a basic question: What have I done wrong?

Steve knew the furlough was coming; all employees at his company had to accept two or three weeks of leave without pay, and they had some flexibility to schedule them. He took one as soon as he could, and set the other one for the holiday season thinking it would feel like a kind of unpaid vacation.

But before his first week was over, Steve was already nervous about missing one paycheck. Even worse, hes worried about what happens if this furlough plan is only a temporary stopgap on the road to layoffs.

Its not that I couldnt make the bills this week, Steve said, but it made me realize that I couldnt go long without a job, and Im worried about how long Ill have one.

Anticipating a layoff and living through one are two different things. But the more you can anticipate trouble, the easier it is to handle. And as bad as a furlough is, a missed paycheck holds a lot of good lessons.

In fact, anyone who is simply looking to cut spending and boost savings can benefit from the preparation process, too.

All hands on deck

Think of your layoff plan as a decision about which expenses get a spot in your financial lifeboat.

The more that can be tossed overboard early, the easier the process becomes. Cast off wishes and wants, and your needs can be met for a lot longer.

First, review where the money goes; tally all bills due, plus all regular expenses.

From there, the issue is one of priorities and timetables. Without money coming in, you must reconsider everything you are paying for.

The ultimate goal of those first two steps is a list of priorities and necessities. What do you really need? What cuts go into effect after 30 days? 60 days? 90 days?

Utility bills, for example, must be paid, but a family might be able to save money by bundling services, cutting usage and more. Thats a first cut, with eliminating services coming later.

If, like Steve, youre not in this situation now but fear it, understand that any emergency preparations you make in advance or any changes you can put in place early on will allow you to survive longer.

Financial advisers have varying advice on how big of an emergency fund to keep. In these times, when income may be in question but also when the stock market is making investors nervous, cutting back on investments, getting ahead on bills and building a war chest is important.

Your plan should not just include changes in spending habits, but also a program for paying bills. Dont jeopardize your credit rating; pay bills on time. But consider paying just the minimum, and dont be afraid to call creditors so that the heaviest bills are not all due at the same time.

What the plan should not include, until all other options have been exhausted, is more debt. By taking the steps necessary to stay afloat, the hope is to avoid sinking deeper into debt. Then, once youre working again, you wont be saddled with years of payments.

Note: links have been removed from this article.

News provided by MarketWatch and Benzinga. Powered and implemented by FactSetLegal Statement.