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Advice / Succeeding at Work / Money

Unemployed? What You Need to Know About Your Finances

Whether you’re choosing to leave your job or you’ve just found out that you’re being let go, facing unemployment means that you need to work out a plan for your finances. And no—deciding to put all of your day-to-day expenses on a credit card until you’re back to work is not an adequate plan.

It’s not going to be easy living without a paycheck, but it’s not impossible, and it doesn’t have to dig you into a total financial hole. Here’s what you should keep in mind.

How Can You Replace Your Income?

First things first: You need to find out whether you’re eligible for unemployment benefits and how long they’ll last, which varies by state. Contrary to popular belief, even if you quit voluntarily or were fired, you may still qualify for benefits depending on the circumstances. This site provides links to each state’s unemployment office, where you can find information on unemployment insurance, filing a claim, and benefits.

If you don’t qualify for unemployment benefits—or if that’s not going to be enough—consider picking up a side hustle while you look for something new. (Though, keep in mind that you can’t work a side job and collect unemployment at the same time.)

Figure Out Your Current Budget—and Slash It

Do you know where your paycheck goes currently? If not, it’s time to track and analyze your monthly spending. You can work it out on a spreadsheet like this one, a handy online tool like LearnVest (the company just introduced an iPhone app to make tracking on the go even simpler), or Mint, which will import transactions right from your online banking accounts for you to categorize.

Now that you’ve done that, consider what can you cut out of your budget entirely. Dining out, shopping, and premium cable are easy cuts, but even consider ditching your phone contract and switching to a "pay as you go" plan—you can find options with unlimited data that cost half of what most contracts will cost you. Just watch out for termination fees on your current contract to decide whether it’s worth it at the moment.

While never allowing yourself a splurge isn’t a recipe for financial happiness, in this situation, you should probably delay any indulgences. Remember, you’re only going to be out of work temporarily, and scrimping now will pay off in the long run.

Get Creative With Your Costs

Once you’ve narrowed your expenses down to the essentials—housing, transportation, utilities, and groceries—it’s time to get creative to see where you can save. Start with your landlord or mortgage lender—sometimes they can cut you a deal or get you a loan modification to make things easier during a time of financial hardship. Same goes for your utility companies. Many have discounts and programs for low-income or unemployed residents.

And if the bare bones expenses that seemed reasonable while you were employed (a compact car, a studio apartment) now cost more than you can justify, consider other options. Could you rent a room in an apartment? Sell your car and use public transportation? No, none of this is ideal, but thinking outside of the box can save you a lot while you’re not getting a paycheck.


Deal with Your Debt

Review all the options on your various loans. For instance, you may be able to completely defer student loans or at least lower your payments until your income increases. And this isn’t just about protecting your limited cash flow, it’s also about looking out for your credit. Not only will some potential employers review your credit report before extending an offer, but by staying on top of your payments, you avoid digging yourself into deeper debt and the possibility of losing your home or car.

Finally, though they may seem tempting when you’re short on cash, consider your credit cards a last ditch option, and find it in your budget to pay at least the minimum on them each month.

Take Care of Yourself

Yes, money’s tight, but don’t make the situation worse by not taking care of yourself. Make sure you have the insurance you’ll need in case of an emergency. Find out from your former employer how long your insurance coverage will last and what you need to do to extend it under COBRA. You can also shop around for an outside short-term policy.

Another important note: Don’t be afraid to say no to things you can’t afford—without feeling guilty about it—whether that’s declining a pricey birthday dinner for your best friend or refraining from bailing your niece out of her own financial predicament. I’ve seen so many people, particularly women, get themselves and their immediate families further behind because they want to help everyone they can or don’t want to cause hurt feelings. But when you’re short on cash, you can’t effectively help anyone without helping yourself first.


Ideally, of course, you’d have saved an emergency fund that could cover three to six months of your expenses. But even if your savings are limited, with some work on your part, your finances will recover from unemployment. And hey, with your new lower-cost lifestyle, it’ll be easier to set some of your future salary aside for any emergencies.

Photo of woman managing finances courtesy of Shutterstock.