Going through life you can always expect the unexpected. It’s common for life to take an immediate and unexpected turn. It could be birth, death, a move, a marriage or a change in income. In all of these cases, it’s important to evaluate your household finances and decide how to best move forward. In the case of an unexpected job loss, here are 5 ways to reassess your finances to put you on your best path forward.
Start (or update) your budget
Hopefully, you already have a budget, but if not, now is the perfect time to create a budget. The word budget has a negative connotation with many people, but it doesn’t have to. A budget is just a tool, and like all tools, can be wielded for good or for bad. Start by tracking your monthly expenses, and compare that to the amount of income that you have coming in. That income could be from any severance you received, unemployment benefits or part-time work. It’s pretty simple to set up a budget in the Mint app and look at where your money is actually going.
Cut unnecessary expenses (be brutal)
The 50/30/20 rule is a popular budgeting rule that says that 50% of your income should go to essentials (needs), 30% to wants, and 20% to savings. The closer you have been getting to following that rule, the fewer changes that you’ll need to make to your budget after an unexpected job loss. If you are in a 2-income household where one member of the household just lost his job, you may find that you can squeeze things to live on only 50% of the income.
Now is the time to look through your recurring expenses and see how you might be able to simplify your finances. Be brutal – depending on how much money you have coming in, you may need to get rid of most or all of your non-essential spending until you have a new job and new income.
Stop saving and tap your emergency fund
Saving for a rainy day is important and having an emergency fund is one of the key principles of being on sound financial footing. Well, guess what – an unexpected job loss IS the rainy day you’ve been saving for! One of the first steps in reassessing your finances after an unexpected job loss is to stop any non-essential emergency or retirement contributions. You can always pick those back up once you’re back on your feet.
You can also stop contributing to your emergency fund. Now is the time to pull FROM the emergency fund if needed. It’s normal in a situation where you have a sudden loss of income to no longer be living below your means. The best thing that you can do in that situation is to minimize your shortfall each month. Calculate how much money you’ll be losing each month that you’re without an income and determine how many months your emergency fund will last you.
Of course, if you were just hit with an unexpected job loss and don’t have an emergency fund available to help tide you over, it does no good to tell you that now. The time to prepare is BEFORE the unexpected happens. So if you’re reading this article and are in a good financial situation, make sure that you are preparing yourself for an unexpected job loss or other financial misfortune.
Know your benefits (and when they expire)
If you’re facing an unexpected job loss, you’re likely eligible for certain benefits. Depending on your employment situation, you may have received a severance package. You’re possibly also eligible for health care through your former employer or a government agency. You’ll want to make sure to claim your unemployment benefits if you’re eligible as well. Take a look through all of these benefits and find out how much they are worth and most importantly, how long they’re good for.
Look for part-time or gig work
There are only two ways to make up a monthly shortfall. Either you can cut spending or you can increase income. Cutting spending is a good first step, but there are only so many gym memberships or iced cappuccinos that you can remove before you start cutting pretty deep. Once you’ve hit that point, you’ll want to concentrate your time and effort into increasing your income.
You’ll want to spend most of your effort into getting a new job in your field of expertise. No amount of part-time work or side hustles is likely to compensate you as well as returning back to full-time employment in your field of study. But in the meantime, here are a few ways to make extra money quickly:
- Sell extra possessions that you no longer use or need
- Join the gig economy (Uber, Lyft, Doordash, Airbnb, etc)
- Focus on a side hustle
Hopefully, these suggestions will help you reassess your finances after an unexpected job loss and help you survive until you can get back on your feet.