This is an important time to keep your financial wits about you. The need to meet living expenses goes on while you're job-hunting. Here are some general dos and don'ts:

DO negotiate the best possible severance package.

Get as much as you can as quickly as possible, while your employer still feels guilty. If the boss makes an offer, make a counter offer – what could you lose? Try to get as many of these valuable benefits as possible:

• Accumulated vacation pay
• Payment for unused sick time
• Outplacement services
• Salary continuance
• Unvested pension money
• Temporary office use (copying, typing, secretarial, etc.)
• Club payment of medical, life and disability insurance. (While the law requires your former employer to offer to continue your health insurance for a certain period of time, you are responsible for paying the often-hefty premiums – unless you negotiate otherwise.)

DON'T automatically cash out a lump-sum distribution from a club-sponsored retirement program.

If you cash out, you'll have to pay taxes on the entire amount as current income. Since January 1, 1993, plan administrators are required to withhold 20 percent of a lump-sum distribution for income taxes. Depending on your marginal tax rate, you may owe even more. And if you're younger than 59, you'll also face a 10 percent penalty. The taxes and penalty can easily eat up nearly half of the retirement nest egg that you spent so long incubating.

It's better to roll over your retirement funds into a special individual retirement account (IRA). However, there are some special considerations, especially with the withholding rules that took effect in January 1993.

You can use a conduit IRA to move the entire balance into a new IRA, and then roll it over again into your next employer's plan (if it allows). To avoid the 20 percent income tax withholding, you must arrange for your plan administrator to transfer the lump sum directly to the IRA (or to another retirement plan) – trustee to trustee.

If you take possession of the funds, even for immediate placement into another plan or an IRA, 20 percent will be withheld for taxes. That means you would have to find the 20 percent from another source to make the sum whole – and entirely tax free – again.

Otherwise, you're only rolling over 80 percent of the distribution, so you'll have to recognize the 20 percent withheld as current, taxable income. (You can use a rollover IRA to transfer part of the distribution from your old plan into the new IRA.)

There are a few more rules you should consider:

• You have 60 days after receiving a lump-sum distribution to decide what to do and effect the transfer. Any amount that you don't transfer to a rollover IRA within 60 days is taxable as current income.
• You cannot at any time commingle the funds with an existing IRA.
• Partial distribution funds in a rollover IRA cannot be rolled over again into a new employer's plan.

Another option is to accept periodic payments (at least annually) from your old employer's plan. These distributions will be taxed as current income only when you receive them, so they won't bump your income quite as much, and you may not face as big a tax bite. There's no early distribution penalty either.

Seek your tax adviser's guidance for the best option in your individual situation.

DO lay out a financial plan for the time you'll be job hunting.

While you may find something right away, you should be aware that in today's economy many people find it takes six months to a year to land a new job. It's wise to develop a financial plan for at least six months.

Your plan should list your current cash position, your expected cash income (including severance, vacation pay, unemployment compensation, spouse's income, interest and dividends) and your expense forecast (including mortgage/rent, food, utilities, debt payments, transportation expenses, insurance, medical expenses, etc.)

DO tighten your belt.

Analyze all your projected expenses, and cut where you can immediately. Set priorities for spending; practice cost cutting: eliminate luxuries; clip and use coupons; cook at home instead of eating out, ordering in or picking up take-out; walk instead of drive.

DO seek additional sources of income.

Think about the many skills you possess – not just those you used at your former job, but also from hobbies and past experiences. You may be able to apply these skills to earn extra money while you're looking for a new position. Be careful to keep your priorities straight, though. Don't let temporary jobs keep you from following up on job leads.

DON'T add to your current debt load.

If you established a line of home-equity credit before losing your job, good for you! If you haven't already paid off high-interest-rate debts, you might want to pay those off now with a home-equity loan. The interest rate will be much lower than most credit cards, and the home-equity loan interest is still tax-deductible. Be careful, though. Remember that this credit is secured by your house. If you cannot repay, you could lose your home.

If you don't have access to your home equity, you may want to consider a bill consolidation loan. However, you may have trouble getting one approved without current employment. Even if you are approved, you should be aware that commercial debt consolidation loans cost money. Your monthly payment will be less, but you will extend the life of your loans, and over time, probably pay even more in interest. If you decide to go this route, shop carefully for the best terms.

If you face a list of bills too long for your current resources, you must make the hard choices about which bills should be given high priority, and which can be deferred, renegotiated or otherwise settled.

Plan to first pay bills that shelter (rent/mortgage), maintain vital services (utilities, phone, transportation, insurance), cost the most to postpone (because of late penalties, repossession or disconnect-reconnect charges) or are likely to be vigorously collected.

Prepare a payment plan before you talk to creditors, and be sure to contact them before the bills come due. Most communities have a local Consumer Credit Counseling Service, a free agency that will help you figure out a budget. If you need it, Consumer Credit Counseling can help you develop a debt management plan that will renegotiate and/or defer your debts to a payment schedule that is within your means.

DO consider borrowing from family, if you must borrow.

It's not easy to ask for help. But if your family has the means and you're on good terms, this may be a viable option. Just be sure to put everything in writing, including the payback schedule. Then stick to it.

DON'T invade the principal of your savings if you can help it.

Use the interest income on your savings if you need it, but avoid touching the principal for as long as you can. You may need your savings for sudden expenses later on.

DO consider bartering for goods and services.

More and more people are learning the advantages of bartering. It's possible to make a great trade, while conserving cash and avoiding sales taxes. You must, however, report as income, the fair market value of goods or services you received in return for your services. Think about what possessions or skills you have that you might be able to exchange for something someone else has.

DON'T sell your possessions, unless you don't intend to replace them.

You'll seldom get what it would cost to replace them. Besides, the ones that would bring the best price are usually the ones you love the most. If you do have something of value that you don't mind parting with, be sure to get the best possible price for it.

Of course, if you've been meaning to have a yard sale or garage sale to get rid of the clutter, but just haven't made the time – do it now. It takes some work to get organized and you have to advertise it, but you could pick up a few hundred extra dollars.

DO take advantage of support services if you need to.

If you need help, check with your county offices to find out whether your family is eligible for the Food Stamp Program, Aid to Dependent Children, Medicaid and so on. While you've been working, you've been paying the taxes that fund these programs. If you need help while you're out of work, don't be ashamed to seek it.

DON'T file bankruptcy except as a last resort.

If your financial affairs are beyond repair, bankruptcy may be your only recourse. If possible, file for Chapter 13, which will allow you to work out a whole or partial repayment plan if half of all your creditors agree. While Chapter 7 (straight) bankruptcy theoretically wipes your financial slate clean, it looks much worse than Chapter 13 bankruptcy on your credit history – where it will show up for many years after you find your next job.