Seven Ways to Prepare for a Layoff

Job security is a dodgy notion.

Just ask employees at Yahoo!. They're waiting out rumors that the tech giant will slash hundreds, or possibly thousands, of jobs to increase profitability and help rejuvenate its stock price.

The Yahoo! layoffs aren't likely to be an isolated event in the coming year.

With the economy teetering on the edge of recession and showing signs of an economic slowdown, so-called secure jobs really aren't.

A decrease in consumer spending last month resulted in retailers having their worst Christmas in five years, according to government figures. Add this to the stumbling housing market and the massive credit crunch, and you can see why a recession is knocking at the door.

One result of a worsening economy can be a decrease in your salary or, even worse, the loss of a job.

You can take a number of steps to help shield yourself from the bad effects of a recession and help you weather through with a minimum of disruption to your personal finances.

These are seven steps to take:

1. Create and expand your emergency fund.

If you don't have an emergency fund, make setting one up a top priority. If you do have one, take the time to reassess how much you should have in it.

With job security being a little less reliable during a recession and finding a new position being more difficult, you may want to increase the amount you have set aside for this fund from three to six months of living expenses to much as a year's worth. This is especially true if you have a single-income family, are self-employed or are in a career that usually experiences layoffs during a recession.

2. Lock in debt interest rates.

One of the actions that the government has taken to try to stave off a recession is to lower interest rates, which it did in an emergency session last week by 75 basis points, and may lower them by another 25 basis points at the Fed's regularly scheduled meeting this week. With interest rates so low, it's a great time to begin looking at whether it's possible to lower the interest rates on your current debt and to lock in rates if you have adjustable-interest-rate debt.

While you may still want to wait a few months to see if the rates fall a bit more, you should keep your eye on the possibility of refinancing your mortgage over the short term. Also see if you can cut the rates on your auto loan and any other loans you may have.

3. Don't blow your tax rebate money.

Last week President Bush and House leaders reached an agreement that they would provide $150 billion in economic stimulus through tax rebates that will go to 117 million families. This includes individual taxpayers receiving $600 and families receiving $1,200 with an additional $300 per child.

If the proposed tax cut bill goes through and you receive a rebate, be sure to put the money to good use for yourself. While the government wants you to spend it to help stimulate the economy, your first priority should be your personal finances. Use it to help increase your emergency fund or pay down your current debt rather than going out and buying yourself new toys. 4. Pay down debt.

If you have credit card debt, you want to pay as much of it off as possible.

Even if you currently enjoy low interest rates on this debt, you need to be careful. It now only takes a single misstep of a late payment on any of your bills including those not even associated with your credit cards to immediately hike up the interest rates that you pay to the credit card issuer's highest rate under universal default. This rate can be close to 30%. If this happens at a time when your pay is decreasing or you lose a job, it can have a financially devastating effect if you carry a large balance.