Airlines are laying off 100,000 workers, perhaps more. Unemployment is rising. Recession, if it is not already here, seems certain. A sense of unease is spreading.
Amidst all this comes some not-so-cheery advice from the American Institute of Certified Public Accountants: how to handle a layoff or prepare for one if you think your job is shaky.
Boy, seems like we're back in the early '90s, doesn't it?
Most of the advice involves ways to economize, and some of it easily could be overlooked. Obviously, you're better off if you economize all the time and prepare for a rainy day well ahead of time.
First, what if you fear a layoff?
Build a cash reserve to cover three to six months of expenses.
List all your monthly expenses, distinguishing between the necessities, such as food, and the "discretionary" costs, such as entertainment, that are trimmed easily. Start cutting back before you lose your job.
Transfer credit-card balances to cards with lower rates.
Hoard any windfalls, bonuses or tax refunds.
Let me add that a homeowner might consider obtaining a line of credit based on home equity. This offers a single-digit rate and, for most people, a federal tax deduction on interest payments. Thus, the home can be a good source of cash to tide you over while unemployed. Generally, you need an income to qualify, so don't wait until after you're laid off.
If you need to sell investments, look first at those with the poorest prospects for gains. Among those, look to sell the ones that will incur the smallest tax bills. If your sales will trigger taxes, be sure to set the tax money aside or you could end up in an ugly situation next April.
If your job is shaky, start checking out the job market now, so you'll know where to apply as soon as you need to.
Already been laid off? The AICPA suggests the following:
Make only the minimum required payments on credit-card bills. Ordinarily this is not a good practice, but it makes sense for stretching cash during an emergency.
Ask creditors if you can postpone payments or make only partial payments for a few months. You may find them surprisingly agreeable. They may figure a debtor who's trying to work things out is a better gamble than one who just stops making payments.
For your final paychecks, file a new W-4 to reduce the income tax withholding and discontinue 401(k) withholdings. This will increase your take-home pay.
If you have the option of paying to continue your health-care coverage, do it. Without insurance, the cost of an illness or injury could wipe you out.
Don't pull money out of your retirement plan. You'll be hit with taxes and, if you're not qualified for withdrawals, a 10 percent penalty. And you'll shortchange your retirement.