It's in times like unemployment that we find all kinds of ways to cut expenses that had eluded us before. We plug leakages in our spending, downgrade services, and cut out luxuries because we feel the necessity more acutely.
Budgeting is always a good idea no matter what your financial situation, but it is extra important when you are not working (though this assumes that you don't have adequate money coming in from elsewhere). If you have severance or unemployment benefits or some kind of public assistance, they will be temporary and insufficient to maintain your current needs.
Living on your investments
If you have investments that pay interest or dividends, or if you have an investment that you can sell for money, this can take the sting out of joblessness. You might even take a loan out of a whole life insurance policy or your 401k plan and then pay it back later.
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 will need to consult your plan's literature, your HR department, the IRS, or a financial planner to get a clear idea of them.
Consider the effect of taking money out before you had planned to retire. That money is meant to support you after your planned retirement and last for 20 or 30 years, maybe more; can you reasonably expect to pay it back once you have a job again? For that reason, you benefit by taking as little out as possible.
If you're 62 or over and own your home, a reverse mortgage is an option. You can get a line of credit based on the equity in your home.
Use debt carefully
Paying with cash instead of credit means you will have less interest to pay down the road, and on the average, people spend less with cash than they spend with the plastic. If you have existing credit card balances, consider paying only the minimum amount on them while you are 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. The key is to contact them with this request before you lose your job so that you don't risk defaulting.
You can cut some major expenses
The companies holding your mortgage and your auto loan would rather not lose your business with them. You may qualify to make reduced minimum payments for a few months on these expenses. You may 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 to pay off, you can have them put on deferment while you are unemployed.
The key to making all of this work is to contact them before you default on them.
The budgeting part
When budgeting, add up all your sources of income, whether they come from investments, government assistance, money from others, part-time work or odd jobs, and whatnot. Factor in any emergency fund withdrawals you want to give yourself.
For the expenses portion of your budget, add up all your typical monthly expenses. Ideally, you would have begun doing this right before you lost your job so that you can see where your money really goes. By the time your real budget is in full swing, you can start to see where you can cut your expenses.
You may have to cut outlays of money that impact your future, such as retirement plan contributions and any automatic investments you were making, and you might have to take on new expenses you didn't plan; for example, hunting for a new job will cost money, and this should be factored into your budget.
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.