There are rumors that there may be layoffs at DH's employer in 3 months time. We don't think he is likely to be affected because he is in an engineering group designing a core product -- the support staff and less central projects are likely to get hit first. But it seems a good exercise to do a financial fire drill to see what steps we would take if he did get laid off. I estimate in this market it would take DH 6-12 months to find a new job in his field. CA has extended unemployment benefits to 10 months.

Unfortunately I lost the last two years of budget data due to the death of my old laptop, so I have to use my memory and our January spending (rather than an average over many months) as a starting point.

Income
Unemployment benefits: $1,800
My gross income: $5,600 (20 hr/wk)
40% set aside for my taxes: $1,870
My takehome (after taxes): $3,730
Total Income: $5,530

Needs
Childcare: $1200
Monthly Needs: $3500
Monthly Accruing: $830
CORBA or health insurance: $600 (estimate)
Needs Total: $6,130

Monthly Needs includes: car loan, cell phone, electricity/natural gas, auto gas, groceries, home security fee, mortgage, phone/dsl, water, and cable TV. (Yes, I know cable is not a need, but we won't cut it unless our situation gets truly desparate, so this is where it lives in the budget.)

Monthly Accruing includes: car insurance, car registration, HOA fees, home insurance, life insurance, property tax

I'm going to assume the layoff happens after we've paid our 2008 taxes and made 2008 IRA contributions, and so subtract those from our current cash. I also subtracted the money already accrued for property tax, etc., because it will be spent as those bills come due.

Cash Available
Checking/Savings: $17,000
Emergency Fund: $14,000
DH Investment Account: $23,000
Total Cash: $54,000

So with no changes, if we both lost our jobs, our cash will cover almost 9 months of purely needs spending. If only DH loses his job, my takehome is $2400 short of our needs. If I increase to 34 hr/wk, my income can cover the needs without digging into our cash reserves.

Realistically, our wants won't go to 0 so let's take a look at what we're currently spending and an estimate of what we might initially reduce it to.
Monthly Wants current/reduced
Christmas savings: $100 reduce to $50
Vacation fund: $700 to $0
Cash: $200 to $100
Cleaning: $180 to $180
Dining: $300 to $100
Home Depot: $100 to $50
Kid Stuff: $150 to $50
Misc: $600 to $200
Netflix: $25 to $25
Preschool: $165 to $165
Trader Joes: $150 to $0
Clothing/Haircuts: $300 to $100
Total wants: $2970 reduced to $1020

So it would take an extra 6 hours of work per week for me to meet a greatly tightned wants budget. Even though DH could theoretically do the childcare and cleaning while he's looking for a job, I wouldn't cancel these immediately. The cleaning lady really needs this job, and DH would need distraction-free time to search for a new one. The babysitter is pregnant, due in July, so it would make sense to just not replace her at that time.

So here's the plan if DH gets laid off:

Immediately: Increase my work to 30 hr/wk, ask manager if I can increase to 40 hr/wk. DH begins looking for job locally. Tighten wants spending as outlined above.

3 months: don't replace babysitter, consider letting cleaning lady go. Tighten wants spending further.

6 months: recalculate estimated taxes for the year, set aside less.

9 months: DH starts looking at jobs in other cities.