Financial To-Do’s when unemployment hits

Recently I read an article where a financial guru wrote that one of the problems that many who have found themselves without a job is that these folks have not responded financially to their new economic situation. Even when you have an emergency savings, your spending needs to be cut. When your household goes from a 2 income family to one paycheck and one unemployment check you must cut costs. No more eating out, no more shopping sprees, no more vacations, etc. The article highlighted a family where both parents earned a six figure income; they had their emergency savings and have been unemployed for almost year. This family made absolutely no lifestyle changes and now wonder how they will get by.

The advice was that in these tough economic times, families that have not been hit by a job loss should be banking at least one paycheck a month. So living on less than what you make and saving for a rainy day.

Could this really help, can this be done? I challenged myself; I looked at my monthly household budget and was able to cut my spending by 27%, which is equivalent to $14,850 of the average American family’s annual household income.

I minimized spending on activities, clothing, entertainment, gift giving, groceries, lunch money and healthcare. I eliminated spending on allowance for the kids, vacations, services such as lawn mowing and housekeeping, dry cleaning, manicures and other personal care. By making even more drastic cuts I could cut another 3% from my monthly budget. All of these cuts equal one pay check a month, so I could survive and meet all my NEEDS with half the monthly income.

It’s a good idea to get this number for your household. What is the exact amount you must bring in to meet NEEDS and commitments?

Figuring out the numbers seems to be easier for some than it is to actual implement the cuts. So let’s address specific steps you can take to make the cuts needed for you to survive while looking for a new job.

Activities would cover the fees paid for sporting teams, gymnastic classes, music lessons and any associated costs, such as a rental fee for an instrument, running shoes for Cross Country, leotards for gym class, etc. You will have to limit the number of activities you and family members participate in, in order to minimize spending in this category.

Clothing costs can be minimized by shopping at second hand shops, swapping clothes with a friend or family member who has children younger/older than yours, going to garage sales and buying clothes off season. For example a client just spent $44 to purchase six summer outfits. She saved over 60%, now (mid August) is the time to clothes for next Spring/Summer.

Money spent on entertainment can be stretched by going out fewer times, instead of going out every Friday night; you can change it to every other Friday night. Utilizing “On Demand” or “Pay per View” cable features can save you $20-50 over going to the theater. Visit the websites of restaurants you like to find buy one get one free coupons.

The money you spend on giving gifts is a simple way to cut costs you can set limits on dollar amount spent on occasion, set an age limit (for example nieces and nephews only get Birthday gifts up to age 18). Create a list of all gifts you know you’ll need to buy, estimating what may come up, (baby showers, wedding gifts, graduation, confirmations, etc.) and approximately when you’ll need the gift. So through out the year when you see a great deal you can purchase it, cross it off the list, place the item is designated “gift area” spot and be ready for the event. A few winters ago, a local department store was clearing out summer items; we bought 4 Manicure kits with an original price of $16 for each of the 4 nieces who have May birthdays. We paid $3 for each gift, the nieces loved the gift.

Cutting costs associated with lunch money is easy to do as well. Taking a sack lunch, reheating last nights leftovers, going with water, not soda can save you $1-3 day.

Utilizing mail order prescriptions actually pays for four months of medication in our household; this is a 22% savings in healthcare. Attending health fairs are a good way to cut costs as well. Going to the new “in store” clinics that many Pharmacy’s are now offering is an incredible savings to some families.

When eliminating spending, such as mentioned above, it simply means you are no longer doing that activity or buying that item. Many women will resort to giving themselves manicures and pedicures saving from $60 on up a month. When times get tough families will go back to what they used to do with lawn care or housecleaning, which is they do it themselves.

Having a plan to add things back is a great idea as well. It helps with the pain of the changes. By saying when I go back to work I’m going to get my manicures done by a professional, I’m going to bring the maid back to once a month, etc. Start slow when adding costs back. You have lived without them and when you can once again afford it starting out slow will give you even more appreciation.

You can get through times of unemployment, but you have to be smart, you have to recognize and accept that financial changes in your household must be part of this process in order for you and your family to survive it.

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