What you must do if you're laid off

Megan McArdle, the business and economics editor for The Atlantic, has worked at three start-ups, a consulting firm, and an investment bank. Here is her advice for when the pink slip comes. I've been through this, and she's got it nailed.

You need a crisis plan immediately.  Losing your job is an enormous psychological blow.  This makes it tempting to baby yourself. Thinking about the bad things that could happen makes you anxious, so you don't do it.  Worse, you're tempted to treat yourself to a few expensive luxuries you now have time to enjoy.

Now, if you've amassed the kind of savings that would allow you to live in relative comfort without ever working again, feel free.  If you're more like the rest of us, this is absolutely the most destructive thing you can do.  You are entitled to spend one evening consuming more scotch than you ought to, or scarfing down Ben and Jerrys, or indulging in your vice of choice.  But the day after, you should be working out your austerity plan.  Cutbacks should begin immediately, and they should be deep:  no restaurant meals, no trips, no expensive entertainments.

You also need a staged fallback plan.  After how many months do you start selling stuff, or breaking leases, in order to lower your fixed expenses?  The answer should not be "36".  If you run through all your savings, bankruptcy will clear your debts, but it will not feed you.  You need a plan that ensures you will always have enough cash flow to live no matter how bad things get.

Does this sound drastic?  It is.  But what's the worst that happens?  You gave up restaurant meals for three months, and then found a new job.  Well, promise yourself that if and when this occurs, you get to take all the money you saved and blow it on something really spectacular.  Start pricing diamonds, or flat panel televisions, or whatever represents three months worth of cutbacks for you.

 

Nothing can be off limits:  not schools, not the house, not the car.  Just remember that all of these things will be even worse if you are thrown out on the street because you've run out of cash.

Get a job doing something--heck, anything.  I know, I know:  job seeking is a full time job.  Well, you wouldn't be the first person to have two jobs.  Even a part-time job does two things:  it gives you a little bit of cash for current expenses, and it gives you something to focus on besides your unemployment.  Depression is an extraordinarily common side effect of unemployment, and it worsens when you sit home and dwell on it all day.

She has more advice on keeping your hands off your retirement and your home equity at the link.