By Angela Rose, BioSpace.com
If you are currently unemployed, you are not alone. According to the Bureau of Labor Statistics (BLS), the unemployment rate held steady at 9.1 percent last month. This equates to almost 14 million Americans without work. It’s a safe bet that most of them are watching their spending carefully—or at least they should be. It may seem counterintuitive to make a budget when you have little to spend. However, determining where every penny is going (or should go) while searching for your next job is essential to minimizing the damage unemployment can inflict on your future financial fitness.
A recent paper released by the BLS revealed that the median length of unemployment in 2010 rose to 10 weeks. Eleven percent of those unemployed found themselves jobless for more than a year. You should plan your budget accordingly. To begin, take stock of cash on hand and what you can expect to bring in over the next few weeks to months. This will include funds in your checking and savings accounts as well as projected unemployment benefits. It should not include your 401k or individual retirement account. Experts warn that tapping into your retirement savings can result in a loss of one-third to one-half of the withdrawal in taxes and penalties.
Next, make a list of the bills you pay each month and other items or services on which you routinely spend money. Include the average amounts spent as well. If you tend to make all your purchases with your debit card, your past monthly statements may prove helpful in this process.
Now comes the most difficult part; you must weed out the “wants” from amongst the “needs.” Separate your list into these categories. Of course this is not fun. No one wants to give up date nights, gym memberships or going to the salon for a root touch-up. Try to look at this as an opportunity to take control of your situation and possibly even set yourself up for better money management when you’re collecting a paycheck again.
It’s now time to prioritize your needs. You want to keep a roof over your head, pay the utilities and put food on the table while honoring all of your obligations, but an extended period of unemployment may make this impossible. Divide your list of “needs” into items that must be paid no matter what and those that, while you’d like to pay them, will not result in immediate dire consequences if you do not.
Musts obviously include your mortgage or rent, utilities (cable doesn’t count), groceries and basic toiletries, health insurance, car payment and insurance. However, take a look at the list and consider ways in which you may be able to make these obligations more affordable. For example, your mortgage lender might be willing to reduce your interest rate or monthly payments while you’re unemployed. You may be able to find a cheaper auto or health insurance plan. You can certainly clip coupons and shop sales to save on grocery items.
If meeting all your financial obligations becomes impossible, you face the least risk of immediate consequence if you stop making your credit card payments. You will receive calls from the credit card company and eventually from debt collectors. Your credit score will take a hit. However, you may be able to repair some of the damage by paying what you owe once you are again employed. Student loans are another obligation you may be able to let slide. However, before you do so, contact the lender. Most are willing to offer a deferment or forbearance to borrowers who are suffering financial hardship.
Make a budget, stick to it, pay what debts you can and try not to let these financial challenges take over your life. Constant worry takes energy that you could be directing towards your job search. The sooner you find a new job, the sooner your world (and your wallet) can get back to normal.
About the Author
Angela Rose researches and writes about job search strategy, career management, hiring trends and workplace issues for BioSpace.com.
Check out the latest Career Insider eNewsletter - August 25, 2011.
