First Person: Getting My Finances in Order Before a Layoff

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Experts say I shouldn't let my emotions overrun my financial decisions if I become laid off. Since I know I will not be completely rational in a personal financial crisis, I need to get my personal finances in order before a possible job layoff. Because so many of the talented and hard-working people I know have been laid off from their jobs in recent years, I know I'm not immune. It's still a tough job market in Florida. According to a recent article by US News and World Report, the first step after becoming unemployed is to file for unemployment. However, I have a different plan that doesn't include receiving unemployment.

Securing backup income

According to the article, the average unemployment benefit in 2011 was $300 a week. I would rather work extra hours now to build up a secondary source of income rather than take unemployment. Although it's difficult to devote the time to making an extra $300 a week while I work full-time, I have been able to lineup work that I could do as an independent contractor. By networking and researching while I'm still employed, I'll be able to transition to earning at least $300 a week on my own so I can reject unemployment benefits.

Building up a house fund

While some experts say people need an emergency fund of anywhere from 3 to 9 months of expenses, I have a different way of looking at it. I want an emergency fund that is large enough to pay off my mortgage balance. I save the maximum amount I can save in my Roth IRA every year. Every month, I look at my mortgage balance and compare it to my Roth IRA balance. When I have more in my Roth IRA than I owe on my mortgage, I'll invest the additional amount into stocks. Meanwhile, I keep my Roth IRA in a money market so that I can use it to make my mortgage payments. Ideally, I'd like to have enough to pay off my entire mortgage balance. But since that might not be possible, we refinanced so that we have a lower monthly payment.

Staying clear of debt

My husband and I pay off our credit cards every month. Since we both work full-time, we can afford one car payment. However, if I am laid off, we don't want to have to worry about a car payment. We save money in a car fund so that we can pay off our car loan if I'm laid off. At this point, we have two years left on a car loan at a low interest rate. Although I've taken out 401(k) loans in the past, we no longer consider that an option unless we are in a hardship situation.

My husband and I have practiced living on one income, but found it's rather difficult. Because we don't want to have to scale back our lifestyle too dramatically, we are planning ahead by reducing our debt and increasing our cash flow so we are ready for any financial curveballs.

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