The first step to saving money after a job loss is to halt the panic the pink slip caused. If you were forced by health or other circumstances beyond your control to resign, you’re probably feeling some guilt. Get over it fast.
Once you’ve calmed down, the next step is to figure out what will be coming in as income as well as any resources you already have on hand. Traditional sources are unemployment compensation, a spouse’s salary, and severance pay.
You’ll also need to locate and add any liquid savings such as credit union accounts and cash tucked away in a drawer. While you’ll want to avoid tapping them unless absolutely necessary, total the assets in any retirement accounts such as 401(k) and IRA holdings.
Make a Cash Flow Plan
The third step is separating your family’s needs from wants and formulating a spending plan. Although it might sound simplistic, needs are essentials like food, housing, and electricity. Wants are weekend getaways and extra tiers on cable TV.
Once you’ve determined your needs and how much money you expect to have on hand, you should calculate a family weekly cash flow allowance. Having a specific dollar limit mentally helps control spending.
If you’re like many people who have lost their jobs, you’ll discover that you don’t have enough money to cover your needs.
In order to save enough money to survive a job loss, you have to be merciless about trimming or even eliminating expenses. And you must think through the consequences.
If you can’t cover your monthly expenses, you’ll need to prioritize all bills for payment. The next step is dipping into any savings available to cover the shortage. Simultaneously, you have to reduce your budget.
The standard advice of trimming utility costs by moving your thermostat up or down, taking shorter showers, and doing laundry less often always applies. However, if you have contracts for expenses such as cell phone service or pest control, you’ll need to figure out whether a cancellation penalty might prove more expensive than letting the contract run to expiration.
The categories ripest for reduction are supermarket expenditures, incurring “extra” phone charges, maintaining hobbies, and taking any trips. You must cut family spending across the board by buying used and axing wants. The library can become your family’s best friend.
Refinancing a mortgage is probably impossible for someone who’s lost a job. Lowering premiums on home and auto insurance by raising the deductibles isn’t. And though your kids might carry on for a while, foregoing the tuition at their private school in favor of a public institution is often a major savings. CNNMoney advises contacting the financial aid office at your child’s college so that the staff can re-evaluate your package.
Get Creative and Assertive
Saving money after a job loss also takes creativity and moxy. You’ll need to muster up enough courage to spread the word that Christmas Eve dinner for 12 will be potluck and that you won’t be sending Christmas cards.
Learning the art of even informal barter is very useful. An example is tutoring math in exchange for the services of a hair stylist. If you have pets, you might barter a certain number of hours working for the vet each week for professional services. Make sure, however, to consider any income tax consequences of bartering.
Also be sure to review 66 easy ways to save money, courtesy of the Consumer Literacy Consortium.