Image: Unemployment line up © BananaStock,SuperStock

A layoff can leave you frustrated, confused, distraught. You might panic at the thought of having to find a new job in this tough market. But a job loss doesn't have to mean that your expenses spiral out of control -- as long as you take the right steps to reposition your finances.

If you've recently been let go, you're not alone. Although the unemployment rate dropped below 8% in September, major layoffs have taken place this year. They include 8,700 employees from Pepsi, 9,000 from IBM and 14,200 from American Airlines. In September alone, U.S. employers announced plans to cut 33,816 jobs, according to outplacement consultancy Challenger, Gray & Christmas.

To get your finances in order, the first step is filing for unemployment. Most states facilitate the process by enabling people to apply online. The average unemployment benefit in 2011 was $300 a week, which may seem paltry compared with what you were previously making, but it at least helps lessen the load of your expenses. In most states, workers can receive unemployment benefits for up to 26 weeks. Because many former workers are experiencing long unemployment periods -- as of September, the average length of unemployment was 39.8 weeks -- some states have extended the benefits beyond 26 weeks.

To qualify for unemployment benefits, you had to have been let go from your job through no negligent action of your own. If you were fired, you can contest the termination with your state's Department of Labor, says Joe Heider, a certified financial planner for Rehmann Financial in Cleveland. Those who qualify for unemployment can expect to receive the first check in two to three weeks.

However, Christopher P. Parr, a certified financial planner and the president of Parr Financial Solutions in Columbia, Md., warns people not to get so comfortable with collecting unemployment that they don't push themselves to find new work.

Judy Haselton, a certified financial planner and the president of Harmony Financial Advisors in New York City, suggests people take a step back and sort their concerns into three categories:

  • What they can control (e.g., discretionary spending)
  • What they can manage (e.g., anxiety)
  • What they can monitor (e.g., accumulation of debt)

"By addressing your fears and doing something about them, you'll reduce your stress level," Haselton says. "People have a hard time making good decisions when they're stressed out."

You can alleviate those fears by tightening your budget. If you haven't created a budget, you can build one using a free website like Mint.com, which syncs all your financial accounts in one place. Despite how unpleasant it may be, you need to separate your needs from your wants, and cut out discretionary spending. Not only will eliminating things like luxury shopping and premium cable TV help your budget, but it will also put you in the right mindset to save money elsewhere.

People can turn to an emergency fund to temporarily relieve financial pressure. Proper emergency funds contain three to six months' worth of cash to cover minimum monthly expenses. Yet nearly a third of Americans can't tap an emergency fund because they don't have one, Bankrate.com estimates.

Fortunately, those without an emergency fund have several ways to generate cash flow. One option that Heider suggests is for people to shift some of their money from stocks into fixed-income alternatives, such as bond funds. Although interest rates are low, bonds produce a steady source of income. If you don't have a rainy-day fund, says Heider, you can take any gains you've accumulated and invest them in a money-market account. Although they're currently yielding next to nothing, such accounts are a safe place to store money and draw from it to pay bills while you're unemployed, he says.

Part-time work is another viable option, so long as the time requirement doesn't hinder your search for a full-time job. The benefit of going through a temp agency is that it can expose you to more employers, who may be able to hire you if a full-time position opens up, says Mike Piershale, a certified financial planner and the president of Piershale Financial Group in Crystal Lake, Ill. One drawback of going through a temp agency is that you may get placed in a menial job in which you won't acquire new skills.

Health insurance is another area of concern. Fortunately, if your former employer offered health insurance, you can continue coverage through the Department of Labor's Consolidated Omnibus Budget Reconciliation Act program. The biggest drawback: COBRA can be expensive, since you have to pay the premiums previously covered by your employer. Monthly premiums can range from $300 to more than $600, estimates Steve Cassaday, a certified financial planner and the president of Cassaday & Company in McLean, Va.

If credit-card debt starts piling up, Heider suggests reaching out to your card issuer to see if it would temporarily accept a reduced-payment plan. "It's easier to negotiate with a credit-card company, assuming you have good credit and have been a loyal customer," he says.

As a last resort -- before you are forced to liquidate major assets like your car or house -- you can withdraw money from your retirement accounts. If you withdraw money from your 401k before age 59-1/2, you'll have to pay income tax on the amount you take out, you'll miss the tax-free growth you'd otherwise receive, and you'll likely get hit with early-withdrawal penalties. Withdrawing from an IRA before you turn 59-1/2 will also be costly, because you'll usually need to pay income tax and a 10% early-withdrawal fee. (Under special circumstances, the penalty-free withdrawal age is lowered on both 401k's and IRAs.)

The good news? Projections for job growth are promising: Moody's Analytics forecasts U.S. employers will add 5 million new jobs over the next two years. Says Cassaday, "I think the demand for employment is like a coiled spring right now, and I think we could have massive increases in employment over the next few years."

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