Emergency Money: 5 Steps to Survive the Financial Crisis If the Unexpected Strikes

You may have to take out an IRA loan, ditch extra insurance, or get rid of the car.

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It would be nice if the average American was prepared for ups and downs in the economy, but many simply aren't. More than a third of Americans have less than $10,000 in total savings and investments outside of their home and retirement plans, according to the Employee Benefit Research Institute. Meanwhile, the median credit card debt for the average U.S. household in 2008 was $7,066 according to CardTrak.com. Against that backdrop, the threat of losing a job, facing a pay cut, or getting squeezed by debt is a shocking reality for more folks today than in the past two decades. So, faced with a thin safety net, what should you do if something truly disastrous happens? Here are a few first-response tips, compiled with the help of financial expert Jonathan Pond, author of Safe Money in Tough Times: Everything You Need To Know To Survive The Financial Crisis:

Take out an IRA loan. While it's almost never a good idea to take out a loan against your retirement nest egg, unexpected events like a layoff can put you in that uncomfortable position. If you're without savings or facing short-term debts but expect to be back on your feet quickly, borrowing against your IRA is a possibility. Traditional IRAs let you borrow penalty- and tax-free once a year for up to 60 days. If you have multiple IRAs, you can borrow against each one once a year. But paying back that loan on time is vital: If you miss that 60-day deadline, you pay the taxes on the amount borrowed (unless you're over age 59$#189;), and you'll probably be hit with a penalty too. Pond says that can add up to 40 percent of the loan, so don't borrow if you can't repay on time.

Adjust your tax withholding. If you're fairly certain that a layoff might be in your future, you can pay the government less (for a time, at least). Raise the number of exemptions you claim to lower the amount of income tax that's withheld from your monthly check. If you do lose your job and don't find another right away, your lowered income and the accompanying lower tax bill will offset some of the balance. See the IRS FAQ on lowering withholdings here.

[See 6 Tax Tips For Tough Times.]

Prepare a budget. It's always a good idea to know what you're spending, but when family incomes fall, it's absolutely vital. At the first hint that your job might be at risk, assume your income is going to be reduced significantly and that you'll be out of work for at least six months. Start there, tally up your expenses, and start slashing. Cancel your cable. Ditch that cell phone (or that landline). Stop eating out. Keeping a spending diary can help too if you're diligent about keeping track of every extra latte or trip to Target. The important thing is to make cuts quickly.

Get rid of the car (if you can). The two-car household may seem like a right lots of Americans, but if you can get by with one (or none), the savings can be substantial. It may only apply to city dwellers who have access to public transportation, but staying on the road in your own car is costly. According to the New York Times, "in 2007, a statistically average household, with an annual pretax family income of $63,091 and 1.9 vehicles, spent more on transportation than it did on clothing, health care, and entertainment combined ($7,432)." The American Public Transportation Association estimates that individuals can save $8,498 a year by using public transportation, based on a March 5 gas price of $1.933 a gallon. They point out that for every dollar earned, average U.S. households spend 18 cents on transportation. Pond says less drastic measures like car-pooling can help too. [See 6 Answers to Key 401(K) Questions.]

Keep the insurance you need. Ditch the extra (and up your deductible). Even when money is tight, don't forgo insurance. Maintaining basic coverage for your home and health is always a must, since a bit of bad luck can turn a rough patch into a life-altering disaster. But there are ways to save. Consider raising your deductible. According to the Insurance Information Institute, upping a deductible on homeowners insurance to $1,000 from $500 can save up to 25 percent on many policies. As for car insurance, if you're driving an older model, consider paring down and getting rid of collision and comprehensive insurance. Pond says higher deductibles and a close look at policy choices can cut 20 percent off of policy costs. Also, the institute says it may not be cost effective to insure a car worth less than 10 times what you'd pay for coverage. Also, Pond says car insurance rates have come down markedly in the last decade, so shopping around for cheaper coverage might be smart move as well.