5 Tips to Prepare Financially for a Period of Unemployment

5 Tips to Prepare Financially for a Period of Unemployment

Losing your job can prove to be one of the most stressful events that people experience in their lives. When it becomes apparent that a company is planning to have layoffs, people often start to worry about what might happen if they lose their jobs. They may worry about how they will continue to meet their monthly financial obligations without a steady paycheck. If the possibility of getting laid off becomes a reality, they should take some steps to prepare themselves for a period of unemployment. Taking a few proactive steps can help to alleviate the stress of the situation and provide people with some stability when they are searching for new opportunities. The following are some key aspects to keep in mind:

1. Increase your emergency savings.

Ideally, you should already have some money put away in an emergency savings account in the event that you ever lose your job. However, not everyone will have the same amount already saved. People who have enough money to last several months may not need to worry a lot if they lose their job. At the same time, not everyone has this much cash available. If a layoff becomes a real possibility, individuals should start padding their emergency fund as much as possible. Sometimes, this means diverting monthly spending money to the emergency account or even reducing contributions to other accounts temporarily. While finding the extra cash may mean tamping down on your budget, the safety net that it provides typically is worth the sacrifice. Generally, finding a new position can take between three and six months, so individuals who have enough saved to cover their bills for that period of time are in a good position. Once you obtain a new job, restoring the emergency fund should become a top priority.

fixed payment

2. Adopt a bare-bones budget.

Most monthly budgets cover necessary expenses such as food and housing, savings, and debt payments. However, if you become unemployed, then you need to reduce your spending and adopt a bare-bones budget. People should figure out how much money they need to survive every month, which means covering the basic necessities. Revisiting your budget can help you to identify places to reduce spending, which may mean reducing your monthly credit card payments to the minimum for a temporary period of time. You may also want to decrease your savings contributions While doing so may seem disheartening at first, individuals should recognize that the measures are temporary. Once they secure a new job, they should focus on replenishing their emergency fund and restoring their monthly budget.

3. Investigate unemployment options.

The resources that are available to you during unemployment can prove somewhat complex, so it is important to learn about them in the event that you lose your job. Some companies offer a severance, so understanding corporate policies is important. Individuals may also qualify for unemployment benefits through the state, which could entail reporting their income and any job offers. People may also want to consider options to ease their housing situation, such as temporarily moving and subletting the space or even using tools such as Airbnb to boost their income. In addition, individuals should consider their health insurance options and how they will cover themselves once their employment benefits expire.

4. Manage debt wisely.

For most Americans, debt consumes a large percentage of their monthly paycheck. During periods of unemployment, the ability to continue making the same payments may not prove possible. Individuals who expect that they may lose their jobs should focus on paying down their debt, particularly high-interest debt, as much as possible. During unemployment, it can prove tempting to use your credit cards to stay afloat, but individuals should avoid this as much as possible so that they do not end up starting a new job with new bills. Individuals who have federal student loans can switch to income-driven debt repayment plans, which could result in a temporary stay in payments. Furthermore, a deferment or forbearance could enable you to pause these payments for a short period of time in order to reduce your monthly obligations. Even with private student loans or credit cards, lenders will often work with people who have lost their jobs.

old camera

5. Find a side hustle.

When people lose their jobs, they may need to look for other options to bring in money while they look for new employment. Today’s gig economy makes it easier than ever to obtain a side hustle, whether this means driving for a rideshare service or even just walking dogs in your neighborhood. People who possess special skills such as web design or editing may be able to pick up some freelance work to bring in a little extra cash. While these jobs may not provide the same level of income to which one is accustomed, they could potentially help you to avoid using your credit cards or digging too much into your savings. Importantly, these side gigs should not get in the way of applying for new jobs and networking during periods of unemployment. Networking should be a priority if you lose your job, as relying on connections is often the best way to find a new position. In addition to attending networking events, individuals may want to contact former coworkers and mentors to find out if they are aware of any employment opportunities.