These five steps can help you make progress away from letting your money slip through your fingers and towards more conscious, mindful control of your finances.
Losing a job is one of the toughest things that can happen to most people. In addition to the emotional toll of becoming unemployed, you must now deal with the financial toll on your life caused by a layoff. Hopefully, you have saved up a nice nest egg that can ease the burden on your finances. However, even if you have a financial cushion, that doesn’t mean you can continue living the same lifestyle you had before. Here are some important steps to follow to create a bare-bones budget after a layoff.
1. Calculate Your Income
The first thing you must do after losing your job is to figure out your new income. For example, many companies offer their former employees’ severance pay that typically covers a few months of their salary. However, you shouldn’t assume that you will find a new job – at your old salary – before your severance runs out. Therefore, you will need to stretch out any severance pay to make it last for at least six months. If you qualify for unemployment compensation, you will need to figure out your weekly benefit amount. (Generally, you can collect unemployment compensation for up to six months).
2. Determine Your Essential Expenses
After you calculate your new income following a layoff, you must analyze all of your expenses. Determine the essential expenses that you absolutely cannot live without. For example, housing (rent or mortgage payments), any car payments and auto insurance, utilities, medical insurance, and enough groceries to adequately feed you.
3. Reduce All Non-Essential Expenses
After you determine what it actually takes for you to survive, you need to start reducing (and eliminating as many) non-essential expenses as you can. For example, if you like to eat out a lot, you need to start eating at home to save money. If you are planning a vacation, seriously consider postponing it until you are working again. Instead of buying more expensive name brand products, either do without or look for a cheaper generic version. Basically, you need to learn to live on a lot less money, which means giving up many of the things you enjoy buying that you can do without.
4. Create a Budget
The next step to surviving a layoff is to make a budget by subtracting your expenses from your income. If you have any money left over, put it in a savings account. However, if you come up short, look for more expenses to reduce or eliminate until they no longer exceed your income.
5. Hold Yourself to Your Budget
Finally, once you have your budget made, stick to it. Don’t let yourself get tempted to buy things that you don’t need (and can’t afford). Learn to say no if you get invited to do something that will cost a lot of money. For example, if a friend invites you to a concert that you can’t afford to attend, explain to them that you are having to cut back since losing your job.
In short, after dealing with the shock of losing your job, it’s time to assess your new financial situation. Calculate your new income (any severance pay and unemployment compensation), as well as all essential expenses. Start cutting out all the things that you don’t really need to survive. Create a budget and don’t let yourself overspend.