Unemployment is a difficult time and increases the importance of budgeting. Here’s the full breakdown of what you need to know about budgeting while job hunting.
- Budgeting is always a good idea, no matter what your financial situation, but it's extra important when you're not working. If you have severance or unemployment benefits or some kind of public assistance, they will be temporary and insufficient to maintain your current needs. If you have investments that pay interest or dividends or you have an investment that you can sell for money, this can take the sting out of joblessness.
If you take money out of a retirement account before the allowed age, you might have to pay taxes on it, along with penalties. There are some exceptions to this rule that can play into your economic hardship, but you'll need to consult your plan, your HR department, the IRS, or a financial planner to get a clear idea.
Paying with cash instead of credit means you'll pay less interest down the road. And, on average, people spend less with cash than they do with plastic. If you have existing credit card balances, consider paying only the minimum while you're out of work.
Also, consider asking your credit card companies to reduce your monthly payment or even let you skip a month or two. Many of them will allow this. Key is to contact them with this request before you risk defaulting.
The companies holding your mortgage and your auto loan would rather not lose your business. You may qualify to make reduced minimum payments for a few months or even be allowed to skip a payment or two, though you'll have to make them up later. You may qualify for reduced payments on your power bill as well.
If you have student loans, you can put them on deferment while you're unemployed. When budgeting, add up all of your sources of income. Factor in any emergency fund withdrawals you'll need.
For the expenses portion of your budget, add up all of your typical monthly expenses. Ideally, you would have begun doing this before you lost your job so you can see where your money really goes. By the time your budget is in full swing, you can really see where you can cut your expenses. Stay financially fit, friends.