Along with the emotional issues you'll deal with if you lose your job, there will be some real practical concerns, as well. Will you be able to meet all your expenses? What will happen when your unemployment pay runs out? How will you find another job?
A joint poll in February 2001 by USA Today, CNN, and Gallup showed that more than 30 percent of workers could last only one month without hitting severe financial trouble. An additional 15 percent said they could last only one week.
There's no question that unemployment raises a whole raft of concerns—many of them related to finances. In the following, we'll examine those concerns and others and give you some tips on managing your finances while you're out of work.
How Not to Deplete Your Savings Account
Don't Go There
Don't succumb to the temptation to use credit cards in order to maintain the lifestyle you had while you were working and getting a regular paycheck. You can pull off the credit thing for a while, but it will catch up with you big time—guaranteed.
A great idea, if you can work it out, is to trade services. If you teach piano lessons, for instance, and a friend is a hairdresser, offer to give her son every third piano lesson for free in exchange for haircuts.
If you get a severance settlement when you lose your job, it's a good idea to put as much of it away as you can. You can't know how long you'll be out of work, and chances are you'll be very glad to have that money as a backup a little further down the road.
When you lose your job, life becomes a bit uncertain. Even if you got a nice severance package and will be collecting unemployment compensation pay, you'll need to rethink your financial situation.
If you have considerably less money coming in during unemployment than you did while you were working, you'll need to tighten the proverbial belt and keep a close watch on your spending.
One of the first things you'll need to do is file for unemployment benefits. Be sure to do this as soon as possible after losing your job. You won't receive any benefits for one week after being laid off, but if you don't go within the first week, you'll lose more benefits. You can file for unemployment benefits for up to 26 weeks within a one-year period. Most unemployment benefits will equal about 50 percent of the salary you had been earning.
If you have an emergency fund, and hopefully you do, you can use that money to tide you over until you get reorganized. That's the purpose of such a fund, and you can congratulate yourself for having had the financial forethought to establish one. Don't consider the fund to be income, but know that it's there to fall back on when you run short.
Even with an emergency fund, however, you'll want to limit spending until you're more certain about what's going on. As discussed in Do You Need a Budget? most people find variable expenses easier to cut than nonvariable ones. Variable, discretionary expenses are especially prime candidates for cuts.
Just as a reminder, your nonvariable expenses, sometimes called fixed expenses, are those such as mortgage, car, and insurance payments. Those expenses also are nondiscretionary expenses, which means they're not optional. Your health club fee is a nonvariable expense because you pay the same amount every month. It's not necessary, however, so it's called a discretionary expense.
Variable expenses include the electric bill, your food costs, and the amount of money you spend on clothing. They're called variable, obviously, because the amount you'll spend varies. The electric bill and food costs are nondiscretionary expenses, because you've got to pay for electricity and you've got to buy food. Clothing costs, however, are discretionary expenses.
Take a minute to identify areas in which you can cut expenses. If you're like most people and eat out often, you can save a bundle by cutting out restaurants—including fast food. It's a lot less expensive to cook and eat at home. Clothing is another obvious area in which you can cut back. Conserve electricity and water, avoid using your car when you don't have to, and make coffee at home instead of driving into Starbucks when you pass by. Drop the health club and run on the track at your local high school instead. Or dig out that stationary bike from the basement and climb on.
There are many ways in which all of us could save money. We know a family that actually saved money when the husband got laid off at work. They lived on his unemployment payments while they systematically cleaned out every cupboard and closet in the house. They cleared out everything they didn't want or use, and sold it, either at yard sales or to consignment shops. Antiques went to a local auction center. Their cellar and attic were cleaned out, and they made some extra cash to help tide them over until the husband found another job.