While it may not be pleasant to think about, but the threat of job loss is all-too real for many Americans. The green shoots of a potential recovery aside, it's likely that many more people will lose their jobs in the near future. Even if you don't think your job is in jeopardy, planning for the potential of losing your job is a wise thing to do. (Find out how preparation can help you land on your feet after getting the "old heave-ho," in Planning For Unemployment.)

Economic reality – The most important aspect of dealing with a lost income source is managing the cash flow. When there is more money going out than coming in, the only options (besides generating new income by finding a job) are to sell assets or increase debt. Here's a way to decide your best options.

#1 - Project the monthly cash flow without your job.
How much can you cut from your monthly expenses? How much other income will you have? A simple income statement will give you an idea of how much money will be needed from assets or debt so you can live.

#2 - Project the time it will take for you to get another job.
One way is to research how long it's taking for your colleagues to find a job. Rules of thumb, like six months, may not work for you. Try to be realistic.

#3 - Project the total amount needed.
Use the time estimate and the needed cash flow per month to determine how much you should have in emergency savings.

#4 - If you don't have that much money in emergency savings, start saving.

#5 - Until you have enough saved, have other options.
Can you supplement your income with consulting or a part time job? Determine which assets can be sold, taking the tax consequences and other considerations, such a market conditions, into account. And, while it should be a last resort, determine the best places for you to borrow, should it come to that.

Be Ready for the Next Job
While sending out resumes before you actually lose your job may be going too far, polishing your resume a bit won't hurt. Here are three things to do so you are ready on day one.

  • Be ready for an interview. Interviews will be key, so make sure your clothes are up to date, including your worn shoes. This isn't an excuse to spend money on a wardrobe, but consider it as you go along.
  • Stay networked. Continually expand your reach, and especially keep in touch with associates and colleagues who have moved on and gone through this. They may have the best information you can get on job opportunities.
  • Stay valuable. Besides continually building your skills and learning new things, try to do projects that add to your resume, even when they require more work than others are putting in. This may not only help you in your next job, it may keep you in your current one.

Emotional Turmoil
The emotions of a potential job loss hit everyone, and can lead to destructive financial behavior. Here are two action points that can help.

  • Write a letter to yourself. It's hard to separate the emotions of the situation and keep focused on making decisions that will create the best course of action. By writing in the third person, as if you were talking about your situation to someone else, you may find that you see things in a different light. Be specific, objective and real. The cathartic nature of getting it all out on paper may be enough to avoid more destructive releases like excessive spending, and it will help you think through your plan.
  • Exercise regularly. Even if you don't exercise regularly now, when the stress of a job loss occurs, exercise can be the relief that fights off depression and other unproductive emotions. While a five-mile run may be the ticket for some people, a walk around the neighborhood, some easy stretching, or even just some deep breathing can help.

Losing your job can be devastating, and planning ahead will put you in the best position to deal with it. If you put your economic plan together now, your choices will be better and your life won't be as disrupted. If you are ready for that next job before you lose the current one, the job search will be more efficient and you'll get back on track faster. And if you handle the emotions of the situation well, the situation may not be that bad at all. (Is involuntary unemployment credit card insurance good for you, or just your credit card company? Find out in Insuring A Credit Card Against Job Loss.)

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