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5 Important Ways to Protect Yourself Against Job Loss

unemployment line.jpgThey’re coming in waves now. Large job cuts at some of the biggest companies, while the economy as a whole continues its growth. Alcatel–Lucent announced on the 9th they’d raise the number of job cuts in the next three years to 12,500. Diamler-Chrysler announced this morning they’d eliminate 13,000 positions. On the 8th, Eastman-Kodak revealed they’d get rid of between 28,000 and 30,000 jobs. What’s this mean for you? Well, don’t work for companies with hyphenated names, obviously!

Seriously though, it means that, although you may work for a large, supposedly stable company, you can be touched by job cuts at any time as companies struggle to compete in the global economy. There are jobs aplenty available, however. The employment figures for 2006 are very robust. 1.84 million jobs were added to U.S. payrolls in 2006, far beyond expectations. To make it even better, average hourly pay climbed more than expected too, up .8% in December.

One sure way to find yourself deep in debt is to lose your job. To stay debt free, there are a few ways you can mitigate the risk of losing your job.


1-      Have an emergency fund – This time tested bit of advice is sound financial information. Be advised that an emergency fund sitting in a low interest savings account comes with its own opportunity cost. The money in a savings account is earning very little interest in return for its liquidity and comparative lack of risk. So, balance how much you keep parked in your emergency fund against how much you keep in other investments that may give you better return, but retain high liquidity.

2-      Start Your Own Business – You don’t have to begin a fledgling multi-national, or other huge company. If you just start something small it will give you some income diversity. Diversification of income is a fantastic way to mitigate risk in your income, just as in your investments. You can start a business that has minimal barriers to entry, but still offers income opportunity on a part time basis. You want something that offers flexibility and scalability, so you can grow it or keep it small, depending upon your needs. Internet businesses, writing, consulting, and real estate investing are some of these businesses. Running a business is definitely not the choice for everyone, and some haven’t the entrepreneurial vein to pursue that path.

3-      Always Stay Informed as to Other Employment Opportunities – You should be aware of the employment picture in your industry and area. If your job goes away, or looks to be gone in the near future, you should know where you can go for a (comparatively) soft landing. After you lose you job is the too late to start investigating these other opportunities.

4-      Know the State of Your Employer – You should know how your employer is doing so you’ll have a reduced chance of getting blindsided by a pink slip. Keep up, to the extent it’s possible, on how the business is going from many perspectives. You want to be aware of any planned strategic changes, how sales are going, the company’s debts, and very importantly, AP aging. Knowing if the company is having any cash flow problems can be an important harbinger of bad tidings to come. The are many business, large and small, that are profitable on paper, but due to various problems such as poor billing and collections, or credit issues, cannot generate enough positive cash flow to remain viable. In a large percentage of businesses, labor is the single biggest cost component, and one of the easiest to trim. If your company is doing poorly, jobs are one of the first areas you employer will look to cut.

5-      Make Yourself Indispensable to Your Employer – If you are the only person in your company to have certain skills, or consistently generate new business ideas, bring in the largest accounts, or keep your department running in tip top shape, they’ll usually find a way to keep you. In some companies, cuts are done strictly on a seniority basis. In those cases, avoid making choices that will adversely impact your seniority, such as passing on a job change so you can stay closer to your house and cut your commute. Don’t laugh, I’ve seen that happen.

These 5 rules can help you avoid a job loss, or if it hits you, land on your feet as smoothly as possible. Who knows, you could not only avoid the debt problems created by job loss, you could end up with a profitable business you really enjoy. Now that would be a nice change.

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