Your Unemployment Budget: How to Handle Your Finances When You're Out of Work  

DATE: Sep 19, 2018
AUTHOR: Leah Ingram

No one ever expects to be laid off, but the truth is, sometimes it happens to good people. Not to be a Debbie Downer, but it's a good idea to plan your unemployment budget before something like a layoff happens. That way if you find yourself suddenly out of work, you've got your finances in order so you don't have to panic.

Here are four steps you can take to set an unemployment budget long before unemployment happens.

Step 1: Know What You Spend Each Month

You can't set a budget if you don't know what you spend each month. This means more than just balancing your checkbook. You need to know exactly how much money comes in each month from paychecks and any other income (especially if you work for multiple dental practices), and how much money goes out each month for your mortgage, utilities, groceries, credit card bills and other expenses.

Once you have a sense of how much you're spending compared to your income, you have a basic budget. There might even be a small amount left over that goes into your savings or retirement fund. You can enter this information from all of your cards and bank accounts together into a spreadsheet so you can see everything in one place. But the work doesn't stop there.

Step 2: Review Those Monthly Expenses

The point of setting an unemployment budget now is so that when that income spigot gets turned off, you can still afford to live your life. By reviewing all of your monthly expenses now you can determine if you can make them more affordable.

For example, you need to be able to pay your mortgage or a car loan, because you need to have a place to live and a way to get around town. However, are there ways you could make both of those more affordable?

  • Can you refinance your mortgage and lower your monthly payment?
  • Could you downsize your home or move to a rental where your monthly housing output goes down significantly?
  • Can you pay off your car now?
  • Could your family sell a car and get by with public transit or one fewer vehicle?

Step 3: Compare Must-Haves Versus Nice-to-Haves

When it comes to monthly expenses, there are certain necessities. Besides a home and a form of transportation, you need to be able to afford your utilities and any student loans. Those are certainly must-haves.

But is the gym membership, those dinners out three times a week and other conveniences you've become used to really vital when you're in a budget crisis? You can also review your credit card bills and bank statements for any auto-debit expenses that you may not even realize you're paying for. Again, it could be a gym membership you no longer use or an annual fee for a warehouse club that you no longer live close to. Once you find those nice-to-haves that really aren't necessary, cancel them.

Step 4: Try to Live Like You're Unemployed While You Still Have a Job

If there is the chance you might get laid off in the near future, start living today like you won't have a job tomorrow. This way you can get used to living on less before it's necessary, and it won't be such a shock to the system.

There's another benefit to living on less now: You can squirrel away the extra money you're no longer spending. This allows you to create an emergency fund in your savings account.

Finally, you've probably heard about the gig economy and how people of all ages are pursuing side hustles. Now is a great time to think about a side job you can do to bring in income during tight times. For example, are you a dog lover? What about signing up with a dog walking service like Rover.com? You can always consign or sell your family's unwanted clothes on a site like Poshmark for extra money.

While it's smart to reduce your spending for tough times, it's also smart to find ways to rein in your spending before you're unemployed. If you do get laid off, you'll have the confidence and the security to get through it!

Takeaways

  • Create an unemployment budget before you get laid off to help you plan financially.
  • Separate your expenses into needs and wants.
  • Try to live frugally or take a side job you enjoy while you're still employed.

Why It's Important

Financial planning doesn't have to be daunting, and neither does paying your bills if you get laid off. Making an unemployment budget for a rainy day can help you figure out where to cut costs in your everyday life.