By Melanie Pinola

How to Prepare If You Think You Might Lose Your Job

How to Prepare If You Think You Might Lose Your Job If you're starting to get an unnerving feeling that your job is on the line, you can do a lot to soften the blow in the unfortunate event you do lose your employment. Preparing now can help you deal with the financial and emotional strain that comes with job loss. Here's how.

Previously we featured 10 things you need to do if you were just fired, but this guide is for those months or even weeks when you start getting warning signs that you might lose your job. If this is a real possibility, hopefully you will get those warning signs: layoffs in your organization or your industry, more of your work being outsourced or redirected to consultants, company benefits and perks being eliminated, or maybe even just a general (new) sense of malaise or doom and gloom. Not all of these mean you will lose your job, but they may be signs that it's time to prepare. Some of the tips are also basic things you should do if you're preparing to leave your job, especially if you're thinking of setting out as a freelancer or independent contractor.

A little backstory: I recently lost my job as an Art Director and IT admin when my employer of thirteen years went under, as so many businesses did in the recession. But the warning signs were there for several months before that happened, so I was lucky to get some advance preparation time. Many of the suggestions below I learned through hindsight (the best teacher), while others are steps that put me in a much stronger position than I otherwise might have been. While I'm not a financial professional or career advisor, I'm hoping my experience can help someone else out there. Here's what I've learned:

1. Reassess Your Financial Situation

Living within your means, setting up a proper budget, and saving money (even in a recession) are recurring Lifehacker themes, but there's no more dire moment than when you think you might lose your income to reexamine your finances. Make sure you have all your debts and assets accounted for in your financial snapshot (Lifehacker Hive Five winner for best personal money management site Mint can help you build this snapshot).

2. Trim Your Budget To Boost Your Emergency Fund

Next, reevaluate everything in your budget to cut the fat and redirect those savings to your emergency fund—your biggest financial priority right now. The typical 3-to-6 month goal for an emergency fund may seem like a big goal, but because you don't know how long unemployment will last, it's best to just try to save as much as possible. If your household has a second income, you can even try living on just that one income (or as close to it as possible).

3. For Homeowners: Consider Your Mortgage

Refinance if it makes financial sense. Bankrate has a guide to deciding whether or not you should refinance. If it does makes financial sense for you (and your monthly mortgage payments will be lower), apply for the refinance now, while you're employed and can qualify for it. Take the savings from the refinance and add to your emergency fund.

Take out a home equity line of credit or home equity loan, maybe. Similar to the above, if you want to take out a HELOC or HEL, you should do so when your chances are best for qualifying. However, using your home's equity as an emergency fund can be risky—a home equity loan is taking out debt you don't need now (and that could make you lose your home if you get in over your head), and lately lenders have been closing down lines of credit.

Money Magazine suggests making a HELOC your back-up plan — really, your last resort — and having a healthy emergency reserve first to prevent you from digging into the line of credit. If you're concerned about the lender limiting access to your line of credit after you lose your job, you can do as this NY Times story describes (and what I actually ended up doing): take some money from the HELOC and put it into a high-yield savings account or high-yield interest checking account. You'll have to pay the difference in interest, but it may be worth the peace of mind to you to have that liquidity in a worst case scenario.

Consider mortgage unemployment insurance. The mortgage is most people's largest expense, and in hindsight this is something I wish I had looked into when I started getting clues my company was going under. Mortgage unemployment insurance pays your mortgage if you lose your job (that is, if you're laid off or fired, but not if you quit). As with all insurance, it's all about risk—you'll need to weigh the cost of the insurance vs. the chances of you being laid off. The policies all differ in the amount of time you can collect, how much they'll pay, the waiting period before they start paying, etc. For more information on this, see Bankrate's guide.

4. Join Professional Associations and Start Networking

Joining an industry association or other type of membership might help with accessing new job postings, networking, and getting group discounts on medical and other insurance after you lose your job. The sooner you make professional connections, the greater the chances of you replacing your job quickly. This is also a good time to update and clean up your current social media profiles and join professional social networking site LinkedIn, which future employers will likely check out.

If layoffs are already happening in your company, it's time to update your resume and start posting it anonymously—most of the top online job search sites, including top-voted Indeed will let you do that.

5. Find a Side Job or Volunteer Work

A part-time job or freelance work can help sustain you after you become unemployed, and volunteer work can also sometimes lead to paid opportunities later. Many successful companies started in people's basements and garages as hobbies at first, so now's a great time to tap your entrepreneurial spirit and consider your own business.

You never know when one small thing will lead to a much bigger one. For me, the threat of unemployment made me take a small side writing gig, and it was one of the best things I've ever done. That one freelance gig led to another, which led to another, and snowballed to land me here.

And Finally...

If the threat of unemployment looms over you, try not to stress. Take care of yourself and comfort in the fact that you've prepared. Even if your job stabilizes and you don't lose your job, you'll come out of this exercise with a larger emergency fund, a stronger professional network, and a possibly lucrative side job. Photo by texas_mustang

If you've had a similar experience or can offer advice for fellow readers who are in this tough situation, please share them with us in the comments.

You can follow or contact Melanie Pinola, the author of this post, on Twitter.