Do You Have a Job-Loss Safety Net?

“What are the chances that I'll lose my job?” Unless you're a retiree, a tenured college professor, or the owner of a business, that question has probably passed through your mind at least a few times over the recent years. Even if you're confident about the security of your current position, it never hurts to put in place a good safety net. Some of the primary steps are outlined below.

1) Build Up Your Emergency Fund

Having an emergency fund in place can help if you suddenly find yourself unemployed. Moreover, an emergency fund can also be helpful for unexpected and unreimbursed medical expenses, big-ticket auto and home repairs, etc. Conventional financial-planning wisdom has long held that you should keep three to six months' worth of living expenses in highly liquid accounts like checking or savings accounts, certificates of deposit (CDs), money market accounts or money-market mutual funds, but the recent financial crisis illustrates that figure is probably too low. Wouldn't you like to have more than three months to find a new job if you lost yours?

2) Consider a Roth IRA for Retirement Savings

You can't put your life—and your long-term financial goals—on hold just because you're worried about job loss. But you can be strategic about what you sink your money into, and that means focusing on those investments with the fewest strings attached in case you need to make a withdrawal. Rather than saving within the confines of your company retirement plan or a traditional IRA, where you'll pay taxes and penalties if you need to withdraw your assets prematurely, consider deploying fresh retirement dollars into a Roth IRA instead. With a Roth IRA you can withdraw your contributions tax-free at any time (the early withdrawal penalty, however, may still apply). And because you're contributing aftertax dollars, you won't have to pay taxes on your earnings from year to year or upon withdrawal during retirement. Please keep in mind that income limits do apply—talk to your financial advisor to see if you're eligible.

3) Pay Down Costly Forms of Debt

If you already have expensive types of debt such as credit cards and are concerned about job security, the first thing to do is to reduce that burden as soon as you possibly can. Credit card companies are the last folks you want to mess around with if you find yourself in a financial bind, as they're able to raise your rates if you're late on a payment.

4) Be a Commitment-Phobe

While service providers—particularly purveyors of cable TV, Internet, and telephone service—will offer you a lower rate if you sign a contract of a year or more, be sure to weigh those lower rates against the risk that you'll lose your job. If you're concerned about job security, read the fine print on any contracts to see what it would cost you to get out of the agreement in a pinch.

5) Contemplate Refinancing

If you haven't refinanced your primary mortgage to take advantage of currently low rates, it's time to have someone run the numbers. As with any type of financing, it's better to shop for a mortgage while you're employed than when you are not.

6) Take Advantage of the Perks You Have

Have you had a physical lately? Do you need new glasses or contacts? Are you overdue for a visit to the dentist? If so, it's time to make some appointments. Chances are you're paying decent-sized premiums for the insurance you have through your employer, so it pays to take advantage of all your perks while you still have them.