Losing your job can be a surreal experience. In a matter of minutes, your paycheck is gone, as is a major portion of your life, from your morning routine to the coworkers you chat with at the office. It’s not just scary, it’s disorienting, and it can leave you in a full-blown existential crisis.
You’re not helpless, though. In addition to your skills, experience and support group, you also have a powerful weapon that can help you cope with almost every aspect of job loss—your budget.
Not convinced? Read on to see how a budget can help you deal with losing your job, and even help you to get a new one.
Here’s how to budget your way out of job loss
A Budget Helps you Manage Money After Losing Your Job
The worst part of job loss is usually that you lose a steady paycheck. According to the website Bankrate, an astonishing 61% of people say they live paycheck to paycheck. Even if you do have a robust emergency fund with at least three months of salary saved in advance, you’ll feel the pressure of making sure your emergency fund lasts until you find a job.
This is where a monthly budget comes in. You can adjust your budget after the loss of a job to cut unnecessary expenses while making sure your important expenses are still provided for. You can even adjust it from month to month if your income and expenses shift.
Before you adjust your budget, make sure you create one first
Financial assessment: where do you stand?
The first step to adjusting your budget after job loss is to understand your current financial situation. Your first step is to figure out what your income sources are, such as:
- Unemployment benefits
- Freelance gigs
- Side jobs
Once you know what income sources you have, you’ll also want to make sure your expenses are current. While it’s understandable if you feel like putting this off, you need to have an updated list of your expenses before you can start making decisions about what to cut in your adjusted budget plan.
Creating a crisis budget
Once you know what your post-job income looks like, it’s time to create a crisis budget. This type of budget prioritizes your necessary expenses, and drastically cuts your discretionary expenses, if not eliminate them altogether. By creating a crisis budget, you’ll be able to ensure that you can pay for your essentials, and that you won’t be spending money you need on things that won’t help you find a new job.
Essential expenses vs. luxury expenses
Knowing you need to cut back on your discretionary expenses, or luxury expenses to fund your essential expenses brings up an important question: what exactly are luxury expenses? It’s not as clear-cut as you might think. Sure, getting rid of eating out costs might seem like a good idea, but what if you need to meet a network connection at a restaurant?
If you’re having trouble figuring out which items are luxury expenses, ask yourself which expenses absolutely need to be paid each month, and which expenses aren’t strictly necessary. Yes, you might end up meeting a network connection in a restaurant, but this probably won’t be a regular occurrence.
However, it’s a bad idea to get rid of luxury expenses entirely. You’ll want to keep something in your budget that’s just for you if at all possible. Trying to find a new job can be stressful at the best of times, and it’s nice to be able to just take some time and do something nice to boost your mental health once in a while.
When should you use your emergency savings?
While you’re putting together a new budget, you might be wondering when you should use your emergency fund to help cover expenses. It’s a good question to ask, and there’s no one-size-fits-all answer. After all, you created your emergency fund for situations like these, but it’s also a finite resource.
The best strategy is usually to dip into your emergency fund to shore up your necessary expenses, like mortgage payments, utility bills and auto loan payments. Having said that, you might also want to use your emergency fund to cover an expense related to your job search. If you’re heading to a job interview, for instance, you can use your emergency fund to cover the cost of driving to the interview, and maybe having a bite to eat afterward.
How can a budget help you manage your debts after a job loss?
One of the biggest worries people face after job loss is how they will pay their debts, whether it’s the electricity bill or the mortgage. Fortunately, a well-planned budget can greatly assist in managing debts.
Once you have the comprehensive overview of your financial situation that a budget provides, you’ll be able to prioritize debt payments and make sure all your necessary debts will be paid. You’ll also know which debts you might fall behind on, so you can reach out to your creditors to try to work out a solution.
How can a budget help you maximize your side hustle?
If you’re fortunate enough to have a side hustle, a budget can help you figure out where that money should go. You might use it to shore up your necessary expenses, put it towards your job search, or treat yourself if your necessary expenses are covered.
How a Budget can Help With Your Job Search
A budget won’t just help you cut expenses once you've lost your job. It can also be a valuable tool while you're searching for your next opportunity. A budget can help job seekers allocate funds for networking events, professional development and job research while still making sure the necessary expenses are covered.
Creating a job search budget
Let’s face it—if you’re going to maximize your job search, you’ll need to spend money. However, you also don’t want to overspend, especially if funds are limited. One way to keep track of your job search expenses is by creating a budget dedicated to your job search.
A job search budget is similar to the type of budget you create for other goals, like vacations or moving. Here’s how you do it:
- List all the potential expenses that might arise as you’re searching for a new job
- Estimate the monthly cost of those expenses
- Total the cost of the expenses to figure out how much you’ll need to spend each month
Once you’ve listed all your expenses, the next step is to separate them into recurring and one-time costs. Recurring costs might include:
- Subscriptions to job-hunting websites
- Professional association fees
- Website hosting fees
- Professional help from a career coach
While one-time expenses might entail:
- Networking events
- Transportation expenses
- New clothes for interviews
Recurring costs should be incorporated into your existing budget, while you might want to just dip into your emergency fund to pay for the one-time costs.
How a Budget can Help you Return to Work
Once one of the new opportunities you've had your eye on finally turns into a real job, you can use your budget to help you plan your return to work. You’ll want to go through your budget again, get rid of your job search budget categories and add in categories for expenses that relate to your new job.
New job-related expenses to consider
- Safety equipment
- Employer-mandated physical screenings
A budget isn't as complicated as a witch's spellbook. Ask us if you need help!
Get Through Emergencies With First Alliance Credit Union
There’s no getting around the fact that the loss of your job is traumatic. However, you can use a budget to help you navigate the economic uncertainty due to your loss of income, allocate money toward your job search, and even help you get ready to return to the workforce.
You can also get through unexpected emergencies when you become a member of First Alliance Credit Union. You can use Direct Deposit to automatically save part of your paycheck in a traditional savings account or even a money market account once you have enough money. If you need some financial relief, you can also download an anytime Skip-a-pay form to skip a loan payment.