Furlough is unpaid forced leave. Many companies are considering furloughing employees on a rotating basis, instead of firing anyone. This move is used to help save jobs, protect numbers, and to keep the company competitive once the market begins to improve. Furloughs are common among manufacturers, but government agencies have also begun to consider and use furloughs.
If you are facing the possibility of a furlough, this means that you will lose money. Furloughs can be enacted in several ways. Your employer may simply have you take one day a week off, or he may have you take a week or two off all at once. The furlough may happen to everyone in your company at the same time or they may rotate it through different employees. Depending on your situation, you will need to prepare for the loss of income. If your furlough is spread out over time, you may need to look for a long-term additional income source. If it is just a week or two, then you can begin saving now to cover it, and possibly pick up temporary work during your time off. If you are preparing your finances for a possible recession, you will be in a better position to handle a furlough.
If you have your emergency fund in place, then you may be able to look at the furlough as the opportunity to relax at home for an extra week. However if your company is using furloughs as an option, you should still be responsible in how you spend and save. If things do not improve over the next year you may still face the possibility of layoffs.
It is important to be sure that you are living within your means whether or not you have money in savings now. This includes the time that you are on furlough. If you are not already living on a budget, now is the time to create a budget you can follow. You may want to consider cutting your expenses to a lower level now, so that the time you spend without a paycheck will not cause you to fall behind on your payments or have you run short on grocery money. This is a more responsible way to mange your money. If the worst does not happen, then you will be prepared financially to purchase a house or have your emergency fund fully in place.
If you are trying to get out of debt, and applying extra money towards your debt payments, you may want to save up at least one month's salary to help you through the possibility of furlough or layoffs. Depending on the amount of debt you have, you may want to extend this to three months. If your debt is greater than your annual income, then I would focus on getting a three month emergency fund in place to cover you during this difficult time.
Furloughs are not fun, and if your company is considering doing one, you may want to begin looking into other positions and get your resume ready just in case the company decides to make further cuts in the future. You do not necessarily need to jump ship at the first sign of trouble, but you usually have a general idea of the overall health of your company. If you feel like this is going to be on going problem, you may want to begin looking. It is often easier to find ajob if you already have one.