Losing a job is stressful. Your finances likely need to be handled differently when you aren’t receiving a steady paycheck. We spoke with financial experts for tips on managing finances after a job loss. This list is a starting point for reorganizing your money and your spending habits.
Talk to HR
There are a number of different situations in which someone can be let go. They might have been asked to leave immediately, promised a severance package, or given a little time before their last day. The more information you have about your particular situation, the better equipped you will be to make financial decisions.
Jeremy Walter, a certified financial planner and the founder of Fident Financial advises, “If the job loss comes with a severance or other financial benefits, take the time to talk with HR to get a very clear understanding of exactly what they are.”
When reviewing the resources that will be available to you during your period of unemployment, it’s important to know exactly where you stand with your previous employer and the terms with which you are being let go. You might not know unless you ask.
If you have a few days before you’re removed from the company payroll, you can use that time to sign up for programs that are only available to employed individuals. Steve Hale, author of “The Employee’s Guide to Negotiating Severance” says, “If they have been notified, but are still on the payroll through their notice period, they should try to get a Home Equity Line of Credit (HELOC) … Once secured, a HELOC does not have to be used, but is available for a given time period at pre-negotiated rates. It usually requires income verification and thus, the person must still technically be employed.”
Credit programs like this could be a major benefit during unemployment, and some will only be available to you for a limited time. Know your options so you’re in the best position to move on them.
Apply for Unemployment and Other Programs
The process of applying and then being approved for unemployment benefits can be a slow one. Starting on it as soon as possible can help to limit the amount of time between when your last paycheck arrives and government assistance begins. Award-winning entrepreneur (Inside Business, 2013), Dawn Boyer from D. Boyer Consulting says, “Immediately apply for any state unemployment compensation – some states will not provide benefits if the employee was fired for cause, but states normally give the benefit of the doubt to the ex-employee and will likely provide benefits for between 6-16 weeks in most cases.”
Steve Hale also recommends applying for medical benefits under COBRA, the Consolidated Omnibus Reconciliation Act. COBRA is a special government program designed to give individuals temporary health care options during their period of unemployment. More information can be found on healthcare.gov.
You may also qualify for programs related to your 401(k). “If you turn 55 or older in the year in which you leave your company, you can take early 401(k) distribution with no penalty (although you will have to pay taxes for the year in which you take the distribution). There are also rules for hardship withdrawals to your 401(k); check with the IRS,” advises Hale. Once you know the programs and services you qualify for and how much you’ll receive, it can be easier to plan your new budget.
Have a Look at Your Current Assets
Your money can live in a lot of different places. Between checking and savings accounts, mutual funds, and a 401(k), it can be difficult to fully visualize your current financial situation. When you begin to put together your temporary unemployment budget, it’s important to leave no stone unturned. Put together a list of the accounts you have and the amounts of money they contain.
Steve Pritchard, an HR manager for Anglo Liners recommends, “Manage your money by moving it into a separate bank account. Remember, once you’ve got a job, you can easily transfer this money back into your savings.” Having it all in one place allows you to not only see the effect of your day-to-day spending, but allows you to fully grasp your starting point.
Record Your Expenses
Know what you spend. When you’re recording your average expenses, don’t leave anything out. Even something as small as buying your lunch twice a week can add up when you’re trying to cut costs. Luckily there are a number of apps and systems designed specifically to help you see where your money goes.
Walter says, “I’m a big fan of YNAB (You Need a Budget) to track and plan monthly expenses. It’s flexible in its use, and give you a very clear picture of where everything is going. Mint is another popular option that is free, as well as Dave Ramsey’s EveryDollar app which has a free and a paid version. You won’t be able to cut down on spending until you have a clearer understanding of what you’re spending money on.”
John Paul from Knowledge Capital Consulting takes a more traditional approach. “I like the simple pocket notebook to record expenses, but you could do that on a smart phone in notes. I set up alerts at my bank so that every time I spend anything I get notified with an email,” he says. If you have trouble remembering every single expense, alerts can be very helpful, whether they come from an app or directly from your bank account.
Hale finds Microsoft Excel very helpful when putting together a personal budget. “Microsoft Excel has an excellent budget template. In most versions it’s under File > New From Template > Personal Finance > Household Budget. Most of the line items for your budget are already pre-populated in this template, and you can add and delete items as need. There is a copy on the Microsoft Office website as well.”
Whichever way you decide to record where your money goes, take the time to go through the process. Knowing is always better then guessing.
Now that you’ve got all of your expenses together, it’s time to organize them. The best way to go about that is to prioritize each item by need. Hale recommends, “Start with the big-ticket items: rent/mortgage expense, dining out and travel. You may find that you have enough rewards points to cover a modest travel budget, and you can take advantage of the extra time you have to plan and prepare meals at home, saving thousands of dollars a year (vs. going out). You should also carefully evaluate “vampire” expenses such as monthly or yearly subscriptions.”
Walter advises, “Look at all of your monthly expenses and categorize them as either necessities (mortgage/rent, utilities, food, debt payments and phones) or luxuries (entertainment, dining out, cable, etc.). Some expenses that might feel like necessities can be moved to luxuries – i.e. your 200 channel cable package or your clothing budget. If you’re partnered, have a sit-down conversation with your partner about both of your thoughts.”
Trim the Fat
The initial look at your in-flow and out-flow can be overwhelming, but prioritization and cutting out unnecessary expenses can go a long way towards not only making your temporary unemployment budget last, but will also help limit some of the stress that can come with uncertainty.
Little purchases like coffee drinks, takeout lunch and going out at night can add up and may be easier to cut out of your life then other expenses. Reduce as many of those as you’re comfortable with first.
“Don’t go to the point of ‘unhappy’, but remember the less you spend, the longer your runway to the new job. It’s important to keep getting out of the house, so keep your gym membership and hang out in that coffee shop, but get rid of cable and Netflix. Look to downsize and get rid of that storage unit – now is a good time to sell things you don’t need,” says John Engle from Knowledge Capital Consulting. If you choose to have a garage sale, make certain you plan ahead so you get the most out of it.
Rethink Your Big Expenses
If you find that things are still uncomfortably tight after you’ve put together your new budget, investigate how you can lower your priority expenses. There are a number of ways to reduce your utility bill if you’re willing to modify your behaviors. Your bank or utility provider may also offer temporary programs for individuals who have found themselves recently unemployed.
According to Walter, “It never hurts to ask. Smaller banks will most likely have a bit more grace than larger national ones – but call a representative and tell them your situation with honesty. Utility companies might offer to defer some of your payments for a few months. Being proactive before you possibly miss a payment or are late on a bill is better than being reactive after receiving notice that you’re behind.”
These steps should help get you started on the budgeting process, and give you an idea of how long you can comfortably sustain your job hunt. There is no ‘average’ time to be unemployed for, so erring on the side of caution is always a good decision. With your finances in order, you’ll likely be more able to concentrate on the job hunt.
Are there budgeting apps and programs we didn’t mention that you love to use? Let us know in the comments!
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