18 Ways to Budget When You're Unemployed

Author: Christy Bieber | July 15, 2020

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Budgeting is more important than ever if you're unemployed

Budgeting your money is always a smart move in order to make sure you're using it wisely -- but it's even more essential when you don't have a paycheck coming in.

While it can be hard to figure out how to set up a budget when you're dealing with a sudden change in your income, these 18 tips will help ensure you're able to stay on track until you get back to work.

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1. Adjust to your new reality ASAP

Dealing with a layoff is overwhelming, with financial tasks ranging from deciding what to do about your 401(k) to applying for unemployment. But it's important to act quickly as you don't want to keep spending the way you have been now that your circumstances have changed.

That means one of the very first things you should do on day one of unemployment is sit down to make your new budget. After all, the sooner you make adjustments to your spending, the less your chances of running through your savings or going into debt.

ALSO READ: What to Do With Your 401(k) if You Lose Your Job Due to COVID-19.

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2. Take stock of your income sources

Although you're now without a paycheck, you may still have some money coming in. Your spouse or someone else in your household may still be working, for example, or you may have severance pay coming.

Add up what you'll have available so you'll know where you're starting from when you make your budget.

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Unemployment benefits application form.

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3. Factor in benefits available to you

Applying for unemployment benefits ASAP is always a good idea when you're left without work. You should determine the amount you're entitled to and factor that in when adding up your income sources.

There may be other benefits you're eligible for as well if you're struggling, such as money from the Supplemental Nutrition Assistance Program (SNAP). If you are able to qualify for government benefits, you should. Your tax dollars paid for them and they can help you get through a tough time.

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4. Explore options for a side hustle

Just because your primary source of income has been cut doesn't mean you can't find some way to bring in money. Although finding a side hustle has been complicated by COVID-19, there are things you could do safely from home such as freelance writing or virtual tutoring.

Assess what your skills are, look into options available to you, and figure out if you'll be able to bring in a little money during your period of unemployment.

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5. Figure out where you're starting in terms of your spending

Once you've nailed down all possible income sources, assess what your current spending is. This will give you a good idea of how much income you'd need so you can compare it to what's available.

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6. Add up the new expenses associated with being unemployed

When you're determining what you need to spend, don't forget to factor in any additional expenses you'll be faced with now that you're newly unemployed.

For most people, the biggest of these is health insurance because you may lose employer-subsidized coverage and have to pay premiums yourself for a policy. But there could be others, especially if you decide to get help from a career coach or go back to school to improve your skills to make you more employable.

If you'll be looking at these extra expenses, make sure you're factoring them into your budget.

ALSO READ: How to Handle Health Insurance if You're Now Unemployed Due to COVID-19.

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7. Assess your emergency reserves

If your income doesn't cover all your needs, you may need to draw from your emergency fund. Your emergency fund could also be crucial if you face unexpected expenses during the time you're unemployed. So see how much money you actually have saved for a rainy day.

If you have no emergency fund, consider seeing if you can sell any items you don't need to quickly build one. Having this type of financial cushion is especially essential without a regular paycheck coming in.

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8. Start with a bare bones budget

Finally, you're ready to actually sit down and make your budget. When you do it, start with only the necessities including rent or your mortgage, utilities, insurance, food, debt payments, and other must-buy items.

The goal here is to make sure you can cover the basics that you absolutely need to pay for during your period of unemployment. You can always add in extra stuff from there, but you need to first see if you've got the essentials covered.

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9. Aim to continue retirement savings if you can

While you technically can pause retirement savings during periods of unemployment if you don't have the money for it, doing so is a bad idea because it means you'll have to save a lot more later to make up for missing out on the compound interest your investments would've earned.

If you've got the basics covered and have any extra money left over, retirement savings should be your next priority. While you won't have an employer-provided 401(k) during your period of unemployment, you can still score tax breaks for your savings by investing in an IRA.

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10. Prioritize spending on what's most important

Being unemployed doesn't mean you can't spend on anything you want, but it does mean it's more important than ever to consider what's most important to you.

So take the time to think about what you value most so you can use the limited money you have during this time as wisely as possible.

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11. Look for a big expense to cut

Chipping away at small expenses may not do enough to ensure the money you have coming in from unemployment covers everything you need (especially if expanded unemployment benefits provided by the CARES Act run out at the end of July).

If you find you're facing a shortfall, see if there is one big expense you can cut. That will make life a lot easier since you can just make one change and free up tons of cash, rather than trying to sustain dozens of small changes over the weeks and months if you end up unemployed for a long time.

This could mean taking in a roommate temporarily to reduce your mortgage or housing payment, or getting rid of one of your vehicles if you don't really need it. Making a big change can both help you to keep costs down while unemployed and to catch up once you get back to work since you'll have more spare cash to rebuild your emergency fund or get back on track with retirement savings.

ALSO READ: Americans Think They'll Need 8.5 Months to Feel Financially Comfortable After COVID-19. Here's How to Get There Sooner

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12. Slash your discretionary spending

Discretionary spending isn't necessary and cutting it when you're unemployed is usually smart.

Reserve a little bit of "fun" money for the spending you determined you prioritize most and then reduce or eliminate other fun but unnecessary expenses until you're back at work.

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13. Comb through your credit card statements for irregular expenses

Irregular expenses such as an annual car inspection or an important birthday can really throw off your budget when you're unemployed -- especially if you don't plan for them.

To make sure you aren't caught unprepared, go through your past year's credit card statements or bank statements and see what you spent. When you identify an upcoming cost you'll incur, plan for it by saving a little bit each month so you don't have to come up with a big chunk of change all at once when you have no paychecks to cover it.

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14. Look for options to reduce interest costs

Debt is always a burden, but especially when you're unemployed and your income is more limited.

If you can refinance to reduce your interest costs, now is an ideal time to take that opportunity. While it may be hard to qualify for a refinance loan at a low rate without a job, you may still be able to do so if you have a cosigner or your spouse has income coming into your household.

Refinancing debt to a lower rate can both reduce monthly payments and lower total debt repayment costs. Those lower payments should give you some breathing room during your period of unemployment and make it easier to become debt free faster once you're back to work.

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15. Spend time instead of money

When you're without a job, you have more time to tackle tasks that could help you save money.

For example, you could cook at home more instead of eating out to reduce your food bill or could let your housekeeper go and clean your house yourself. Or you could spend time cutting coupons and making a meal plan to lower your grocery costs.

Of course you'll still need time to devote to your job search, but there's lots of hours in the day when you don't have to go to work and you can easily use some of them to make your expenses lower.

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16. Keep track of your spending

Tracking your spending is essential when you're trying to live on a tighter unemployment budget. By keeping tabs on what you spend, you can make sure you're sticking to new limits until you get used to them.

You may also find you're more conscious of where your money is going after you start tracking purchases, which will help you slash expenses even further.

ALSO READ: 8 Smart Things to Do With This Year's Tax Refund

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17. Get the family on board

Living on your new unemployment budget may mean everyone needs to make sacrifices. So work with your spouse to make sure you're in agreement on spending cuts.

And if you have kids, give them an age-appropriate explanation of what's going on so they can get on board with helping ensure you live on your newly smaller budget.

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18. Update your budget often

Finally, you'll need to be prepared to adjust to changes in circumstances.

For example, if your unemployment benefit gets smaller because the extra $600 in weekly benefits provided by the CARES Act ends, you'll need to adjust to that change. Or if you find yourself unemployed for longer than anticipated, you may need to look for further budget cuts if it starts to look like your savings is running short.

The important thing is to keep careful tabs on your money and react quickly to new developments before you find yourself in financial trouble.

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Don't let unemployment derail your finances for the long-term

Unemployment can have a major financial impact, but it doesn't have to be a long-term adverse impact.

By adjusting your budget and making sure you're keeping your spending at a comfortable level based on your new circumstances, you can hopefully avoid getting into debt or making other financial decisions that it's hard to recover from once you're back at work in brighter days.

5 Winning Stocks Under $49
We hear it over and over from investors, “I wish I had bought Amazon or Netflix when they were first recommended by the Motley Fool. I’d be sitting on a gold mine!” And it’s true. And while Amazon and Netflix have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $49 a share! Simply click here to learn how to get your copy of “5 Growth Stocks Under $49” for FREE for a limited time only.

The Motley Fool has a disclosure policy.

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