How to Save Money While Unemployed (Without Scrimping or Suffering)

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Sudden layoffs can strike like a bolt from the blue, without any warning or appeal even though you’ve done nothing wrong. This is the unpleasant flip side of the American Way. When it happens to you, as it almost certainly will at least once during your career, everything feels unfair, demoralizing and even hopeless.

Really, it’s okay to take a few days to recover from the shock. Once you feel like yourself again and you’re ready to face reality head on, it’s time to take stock and plan. Unemployment will inevitably bring about some changes in your lifestyle and spending habits. Don’t panic, however: a crisis is no time to lose your head. Remember that events like these seem much bigger when seen up close. In a few months, you’ll be back on top of things and perhaps a little wiser for the experience.

Money Is Time: How Far off Is the End of Your Runway?

An airplane nearing the end of its runway without the speed to take off is in serious trouble. Financial planners have adopted this metaphor, especially in the startup world: your “runway” is the amount of time you can survive if you keep going the way you are.

It’s not difficult to put a number on this: if you have $10,000 in the bank and you typically spend $2,000 per month, you have 5 months of runway. If you’re living paycheck to paycheck, as about half of American families do, your runway is about 30 days.

Calculating this figure can be a real eye-opener. You may have thought that you were doing okay financially; now you see how precarious your situation really is. Still, it’s one of the first things you should do when you lose your job: knowing your runway figure will help you plan ahead and make better decisions. Should you start thinking about putting your house on the market, or perhaps move somewhere cheaper and rent it out? Do you need to look at emergency loans, or is there some time to explore your options? Is it necessary to cash out an investment, possibly paying extra fees, or can you afford to wait for a while?

Looking at your financial health in terms of runway is not really about terrifying you into saving money when you’re unemployed. Rather, this exercise is all about learning where you stand and finding ways of expanding your financial breathing space.

Unemployment Benefits and Other Sources of Assistance

Nobody likes paperwork, which is all the more reason to get it out of the way as soon as possible. There’s another consideration, too: an application for unemployment benefits often takes several weeks to be processed, a figure that has only increased during the current economic downturn.

The good news is that the CARES act will help cushion the blow somewhat, for instance by extending coverage to people who didn’t qualify previously. Again, however, getting your application filed as soon as possible is definitely in your best interest.

Unemployed workers waiting in line for a free loaf of bread during the Great Depression. Thankfully, government relief programs have come a long way since then

Depending on where you live and your general circumstances, you may qualify for federal or state assistance with things like paying rent. It may also be worth it to find out which local organizations will be willing to help out and contact your creditors to see what they’re willing to do for you. You may be able to defer your payments until you’re earning an income once again or even negotiate a lower interest rate on loans, but you’ll never know if you don’t ask.

Get the Whole Family on Board

One of the worst parts of losing your job unexpectedly is having to explain to your children why you’ll be spending a whole lot more time at home for a while. Don’t put this off too long or try to sugarcoat the facts, though.

Toddlers may be little monsters some of the time, but they can also be surprisingly sensible and cooperative when you explain the situation in terms they can understand. Once they know that their (hopefully minor) sacrifices are helping out the family, they may be more understanding than you’d ever have dreamed when it comes to playing with old toys for a few months longer or eating chicken nuggets at home rather than from a box with a logo on it.

Get Your Spouse’s Help (and Approval) When Drawing up Your Emergency Budget

It often seems like there’s some kind of natural law that makes savers marry spenders, and vice versa. These differences in attitude can lead to tension even at the best of times. When money is tight, it’s essential for both of you to get on the same page, which generally means sitting down together and creating a budget you can both live with (and within).

One of the main benefits of planning your spending instead of just winging it is that you realize just how “small” indulgences end up bleeding you dry. Since these are often paid in cash, try the following exercise if you don’t already work from a household budget: write down your monthly take-home pay on the right side of a piece of paper, list your major bills on the left, then add all your unavoidable expenses (food, transport, loan repayments, etc.) to the left-hand column. Most likely, the two sides will not add up to the same number, and a large part of the difference will be due to impulse buying: stuff you don’t really need, but have become used to buying without thinking about it.

As soon as you become aware of these leaks, you can start plugging them. There are a number of apps that will help you to track expenses – you may be surprised at how small stuff like bottled water ends up draining your bank account.

Bread Before Bacon

Since there’s no way to afford all the luxuries you might want, particularly while you’re unemployed, now is a good time to figure out what you truly need and what you can do without. If you’ve been trying to quit smoking for a while now, for instance, these weeks free of work stress seem like exactly the right time to really go for it.

Identifying our own mental blind spots is really hard, so make an effort to be objective here; you’ll probably find that there are many comforts you can ditch without feeling the sting. What about that bag of potato chips or tub of ice cream you reward yourself with because “you deserve it”? This is really all in your mind: taking a walk or playing with your cat will cheer you up just as much (and be kinder to your waistline to boot).

Have some fun learning how to cook a few basic recipes instead of ordering takeout. Try out a few off-brand products – if you’re spending $5 a tube on toothpaste, it had better be on your dentist’s orders. See which non-perishable foodstuffs you can buy in bulk instead of weekly. Shop around for a better cellphone plan, and cancel any subscriptions you don’t use that much. Talk to your landlord: if you’ve been a responsible tenant so far, they may be willing to cut you some slack. Definitely postpone any large purchases if you’re able, especially if this means piling on credit card debt.

$1,000 can seem like a lot (you can easily live on that for a full month), but it’s really just twenty multiplied by $50. Find only a dozen or so individually minor items on which you can cut back, and you’ve already extended your runway considerably.

Don’t Forget to Enjoy Yourself

While eliminating your wants to leave more cash for your needs is certainly good advice, there’s a big “but” involved here. Humans are not machines: diets that rely on iron self-control rarely work for long. You can let your kids loose with a pair of scissors instead of visiting a hair salon, but that’s not going to make a good impression at your next job interview. A gym membership isn’t as essential as running water, but it’s also difficult to put a price on the extra confidence and energy that comes from regular exercise.

Your goal should therefore not be to switch to a monastic lifestyle overnight, but rather to assess which little luxuries are really important and worth spending money on even while you’re cutting back. Remember that you’ll probably have a lot more hours to fill, so keeping your Netflix account seems like a good idea. Cakes bought at the bakery may be extravagant, but you can still buy boxed mixes and bake them at home.

There’s a kind of gnawing worry that comes with not having an income, so keeping you and your family’s spirits up until things turn around is actually essential in its own way. It will definitely be worth watching out for free or low-cost entertainment, like events at the park or library.

Spend a Little on Home Repair

Now that you have more time on your hands, your standard excuse for not painting the fence, fixing the roof and doing something about that deathtrap you call a porch swing no longer applies. This may cost you a little at the hardware store, but there are good practical reasons for putting some time and money into DIY while you’re waiting for employers to call you back.

If worse comes to worst, this will allow you to sell your house more easily. In the meantime, though, and especially once winter comes around, you’ll also save money every month by making your home more energy-efficient. If you have a yard, you can even channel your inner pioneer and take up gardening. While you won’t save huge amounts on groceries, serving veggies you grew yourself is extremely satisfying and will most certainly taste better. Spinach, peas and carrots can all be eaten within a few weeks of planting.

There is a more important dimension to this, too. Losing your job, especially if you know you were good at it, can be very demoralizing. Doing something with your hands and seeing tangible results reminds you that you’re still in control and will boost your confidence more than any number of pep talks.

Look for a Side Hustle

Spending less is one way of extending your runway, but what if you could lay asphalt as you go? Whatever skills you have, there’s a good chance that you can convert them into a home business and earn some cash. Even if you make only a fraction of what you’re used to in this way, you’ll be far less reliant on savings. Many people who were forced to create their own moonlighting gig have in fact decided to turn their backs on working for a boss ever again. Just be aware that this may impact your unemployment benefits in some states.

Taking a part-time or temp position as a stopgap job is a good idea too. Some people will tell you that three months of working at McDonalds rather than in your professional field looks bad on your resumé: they’re not totally wrong, but they’re not completely right either. Many employers will prefer to hire someone who shows a willingness to take the initiative and do what needs to be done.

Final Words: An Example for the Future

Things may seem bleak right now. Still, remember that any mistake that doesn’t actually kill you is also an opportunity to learn and grow.

Take a moment to think about how your situation would’ve been different if you’d saved 10% of your income every month over the last year or even five. For one thing, your expenses would almost certainly be lower: you’d have less left to pay on your car and home, and you’d not be accustomed to the trappings of a lifestyle you can’t really afford.

Saving just $10 a day – perhaps by getting your coffee at home and taking a longer route instead of paying a bridge toll – adds up very quickly. The table below assumes that these savings are compounded daily at 2% annual interest (in other words, put in a high-yield savings account):

In other words, saving a little whenever you can makes a big difference when unemployment strikes. These small amounts really add up over the longer term, especially once compound interest starts to work its magic.

In a sense, unemployment forcing you to economize is a kind of savings boot camp: living without an income helps to build the habits that lead to financial independence. The trick here is often just to take the advertisements you’re bombarded with on a daily basis with a grain of salt, buy goods for their usefulness instead of their popularity and learn to value quality over fashion.


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Joseph

2 thoughts on “How to Save Money While Unemployed (Without Scrimping or Suffering)

  1. Cherokee says:

    This sucks. People are supposed to survive on $1200, but the companies that fired them get a free ride. Wake up congress!!!

  2. Maria T says:

    I like the idea of runway. If you know you’ve got x weeks living the way you are and it will be longer if you cut back, giving up a couple of things doesn’t seem so hard.

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