Pay Dirt: Prepare for the worst

Layoffs are fast becoming a scary fixture in the daily news. In recent weeks, employees from several Minnesota-based businesses including 3M Co., KSTP-TV and North Memorial Health Care have been shown the door, and more will undoubtedly follow. It's hard not to wonder if you'll be next. Instead of sitting around wringing your hands, now's the time to create an action plan.

What are the odds? There's no reason to worry about something that won't likely come to pass. A notable statistic: Just 13 percent of the 31,800 firms surveyed by Manpower plan to reduce payrolls in the first quarter of 2009. To find out if your company is in that group, "Speak to the powers that be and explain your fears," said Jim Wherley, senior manager at CFS Virchow Krause in Minneapolis. Given the economic news, managers should be understanding and sympathetic to your concerns.

Don't wait for a pink slip to ask "Got work?" "Get your résumé ready and brush up your network," Donna Bennett, an Edina career counselor and author of the book "When You Lose Your Job," recommended.

While it's no fun, résumé-writing will boost your self-esteem through trying times by pointing out your skills and accomplishments. Be specific about what those accomplishments are. Before hiring in this downturn, companies are asking,, "How is this person not a cost center for me? ... What can they do to impact our bottom line through cost savings or generating revenue?" Wherley said.

What does your life cost? Figure out your survival expenses -- costs such as mortgage, utilities, food and transportation costs, not the cable TV bill or the Friday night fund. Most people "don't have a clue about how much they actually need to get by," certified financial planner Charles Buck of Woodbury said.

Cut expenses. If Buck, who worked for decades at 3M, thought a layoff was coming, "I wouldn't be spending a dime more than I had to." Then again, if you have an emergency fund and live within your means, there's no need to take drastic measures.

Have that 12-month emergency fund? In an economy such as this, certified public accountant Lisa Baskfield of Rogers suggests upping the standard three to six months' worth of living expenses to one year's worth of net pay. "You can lose your job at any point in your life, so by having a year of salary ... if it happens to you, you're OK," she said. The money is also handy if your health fails.

If your 401(k) match is 3 percent and you're investing 10 percent, consider paring your contribution to 3 percent and sticking the remainder in a Roth IRA instead. The nice thing about a Roth IRA is that it's funded with after-tax dollars, which allows you to pull out your contributions at any time tax- and penalty-free. I call the Roth IRA the little black dress of personal finance because it's so versatile.

There's also no shame in getting a second job dedicated to fluffing up that cash cushion, even if the pay is far lower than your main job.

Where will the money come from? If you're laid off before the emergency fund is ready, you probably have more sources of cash than you think and time on your hands to pursue them. For instance, in addition to severance, your employer may cash out unused vacation days.

Then there's Minnesota unemployment insurance, which amounts to "about 50 percent of your average weekly wage, up to a state maximum of $566," according to uimn.org. It's wise to figure out whether you qualify and what your benefit will be long before filing.

Because it's likely that you can't pay for your basic expenses with unemployment benefits alone, you may need to be creative, selling unwanted stuff on eBay or Craigslist.org, for example. Buck said now is a good time to go through the jewelry box, because "the price of gold is up."

One of Baskfield's favorite places for found money is from reviewing and revising home, life and auto insurance policies.

What about health care? Many workers can continue their health insurance through COBRA, which sounds good until you learn that it may cost you as much as 102 percent of your current total health care premium -- that's your share and the share paid by your employer. Employees typically pay 25 to 35 percent of their health care premiums, so get ready for sticker shock.

Buying catastrophic "get-hit-by a bus" health insurance may be the way to go for workers who don't have chronic conditions, said Blaine Bos, a worldwide partner with benefits consulting firm Mercer.

And don't overlook the possibility of adding yourself to your partner's workplace health insurance. Most companies consider a layoff a so-called "qualifying event," and will allow benefit changes outside of the open enrollment period.