While the economy has definitely seen an upturn these past years, getting laid off from work or suffering a job loss can still be inevitable at times. It is wise to prepare for a job loss while your income is steady, as well as what to do if the time ever happens.
How to Prepare Your Budget for a Job Loss
Following Dave Ramsey’s baby step program is the perfect way to prepare for a job loss. The first baby step is to save $1000. It is painless and can help in emergencies. After your $1000 is put away safely, Ramsey suggests paying off all your debts, besides the mortgage, working on your smallest debt first.
If you are aware that a job loss is in your future, such as your program/position will no longer be needed in a year, it may be smarter to skip to baby step three, which recommends saving 3-6 months of living expenses in a separate account. Don’t underestimate tackling debt though. Every debt paid off can save you a monthly payment.
How to Budget When You Lose Your Job
Step 1 – Be Honest About Your Job Loss: Losing your job is hard, and you will have to cut back your budget, but hopefully it will only be temporary. Many people take shame that they have lost their job, but in all reality, it is just another common human experience that most people can relate to. Be completely honest about your job lost with friends and family members. The honesty is not a form of you asking for charity, but it can help them be more understanding to your situation. Also, many good friends will probably want to bless you with a meal, which can help your budget. Telling your children about the loss and that cut backs need to be made temporarily will also teach them a very valuable lesson.
Step 2 – Sign Up for Government Benefits: There is no shame in using government assistance for a temporary time. You have worked hard and have even paid taxes to support these government benefits. These benefits are made for individuals like you who just need a little help to stay afloat until a new job can be found. Remember, these benefits take time to enroll in, so do so as soon as possible.
Step 3 – Cut Back Drastically: Look at your expenses and figure out what you can cut immediately without any penalties. Perhaps you can drop your kid’s extra activities, gardener/pool maintenance, your cable, fast food, and even your internet for two months. This will of course be hard on the whole family, but it is just for a short amount of time. Your new budget should be paired down to the minimums as your survival budget.
Step 4 – Sell What You Can: Since you will need all the cash you can get, now is the perfect opportunity to look around your home for unused items that can be sold. During one purge of my own, I realized we had a Playstation, an Xbox, and a Wii console, yet we only used one for Hulu and video games. The urge to hang onto them was great because of how much we paid, but in the end, the two extra consoles were worth selling.
Step 5 – Look for Temp Work: You don’t want to settle for any job when it comes to your career. However, you probably still need a little more cash flow. You can contact past employers to see if they have any temp work available. Also, get in touch with your local temp agency. Family members or friends can be a great source for temp work too, for example, a realtor friend may need someone to do gardening or carpet cleaning.
Step 6 – Call Creditors: As soon as you lose your job, spend an afternoon calling all of your creditors and explain your situation. Even if you can get an extension for a few weeks or a month, this will help your budget out greatly.
Job loss is a hard time for all, but you are not alone. Make the necessary cuts now so that you can stay afloat while you find the right job for you instead of settling on the wrong position due to desperation.