How to Make an Unemployment Budget in 4 Easy Steps! Losing your job is a stressful, emotionally draining experience and you want to be as prepared as you possibly can. This step-by-step guide will help you determine your unemployment budget and get rolling on a plan to save an emergency fund!
How to Make an Unemployment Budget
Sometimes, bad things happen to good people.
Our lives can get thrown into major turmoil by any number of mishaps, tragedies, knee-jerk decisions, or downright bad luck. We can lose our jobs due to layoffs, downsizing, a contract ending, or your company up and moves to another country where it can get labour for cheaper. And when you experience that kind of upheaval, your financial situation almost always becomes your immediate and primary concern. My family has been through unemployment situations a couple of times, and I know firsthand how intensely stressful it can be for everyone involved.
But the good news is there are a few ways you can help alleviate that stress!
When your financial sh*t hits the fan, it’s critically important to know exactly how much you need to have in your emergency fund to make your bare minimum ends meet. I refer to this as my ‘lockdown mode’, or unemployment budget.
Determining Your Unemployment Budget
In a time of extreme emotional and psychological stress, it can give you peace of mind to know you’ll be able to stay afloat for a certain period of time (obviously, the longer the better) until you can find a new job or make the necessary life changes to accommodate your situation.
If you use mint.com to track your finances, this first step in determining your unemployment budget will be super easy for you! But if you don’t use Mint and your bank doesn’t offer a similar spending-tracking program, I’m going to explain how to figure out your average monthly expenses for your necessities so you can budget accordingly and make a solid emergency fund savings plan. Knowledge is power!
Sound good? Hellz yeah it does. So let’s dig in…
Step 1) Assess your fixed expenses
‘Fixed expenses’ simply means expenses where the amounts don’t change (or don’t change much) from month to month. These usually include:
-rent/mortgage (including property taxes)
-mobile phone, cable, and internet bills
-insurance premiums (home/apartment, life, car, etc.)
-car payment/transit pass
Since you likely already have those numbers in your head or easily on hand, write down the totals for your fixed expenses.
Here’s my own example. For my household, they are:
-$1002 (mortgage payment and property taxes)
-$292 (all utilities)
-$165 (cell phone and internet bills)
-$210 (home and car insurance – my mortgage life insurance is included in my mortgage total)
-$25 bank fees
-$306 (car payment)
-$20 (gym memberships)
-$72 (dog food)
If your numbers seem really high, you can always look for a better deal on any of these fixed expenses. In fact, I encourage it regardless of whether you think these expenses are doable for a ‘lockdown mode’ during unemployment. You never want to pay more than you absolutely have to for any service, unemployed or not!
Step 2) Assess your variable expenses
Variable expenses are the ones that fluctuate each month. These usually include:
-pharmacy purchases/personal care items or services
Now, this is going to seem like a pain in the ass, but hear me out: I have found the best way to accurately assess my variable expenses is to manually go through my debit and credit card transactions month by month. You should do about 4 months’ worth to get a sense of the average you’re spending per month on each expense category, e.g. groceries, gas, etc. (Mint.com will do this for you! It’s a really helpful tool and totally free). Unless you spend your money solely in cash, your online bank records will show you the name of the grocery store, pharmacy, gas station, restaurant, utility company, etc., along with the total of your bill. If you use a cash envelope system, you probably already know how much you allocate to each category.
Go through the past 4 months of your expenses, enter the numbers into an excel file or other spreadsheet and tally up the totals by category. After you total them by category, divide by 4 to get the average per category over those 4 months.
(I’ll be honest: this is a pain in the butt to begin with, but it REALLY helps to give you an accurate idea of what these expenses are actually costing you each month).
Fair warning: some of the totals may surprise you… You will definitely see where you’ve been splurging and will need to temporarily eliminate or cut back on certain expenditures.
Step 3) Adjust your spending habits
Unemployment totally sucks. There’s no way to sugar coat that. This ain’t gonna be fun, girl.
In ‘lockdown mode’, you’ll need to pretty much cut out your clothing, gifts, and pocket money categories. I know. It’s brutal.
You’ll also need to drastically reduce – if not suspend – deposits into investments or savings accounts. At this point, you need to have as much money as possible available for necessities, because you want to avoid having to dip into those savings accounts. (Don’t worry – this will be temporary, and once you’re back on your financial feet you can of course resume funneling money into your savings accounts!)
You’ll need to carefully purchase only the most basic personal care and cleaning products, try to reduce your gas usage, and cut back on any frivolous groceries. For the time being you will likely have to forego any holistic treatments like massage therapy or acupuncture unless they are truly medically necessary. No spa treatments either. Also, have a look at gym or other sports memberships. If you have an expensive gym membership you can reasonably wiggle out of (e.g. no stupid contract penalty), you should really give it some serious consideration. Can you switch to a cheaper bare-bones gym for the time being? Can you work out at home, a local rec centre, or outside? Try to remember: this is (hopefully) a short-term measure to make sure you don’t rack up debt on credit cards during your unemployment.
As you know, I have TONS of tips and tricks for saving money on my blog, so be sure to check those out and implement some clever and creative strategies to help you stick to your lockdown budget during difficult times. Hang in there! You’ll be back on your feet in no time <3
Step 4) Plan your emergency fund
Now it’s time to figure out how much money you can reasonably start channeling into an emergency fund. It’s great to have as much in there as possible, but a decent estimate is to have about 4 months’ worth of essential expenses in the bank.
So, what was your ‘lockdown mode’ budget total? Do you already have that amount in an emergency account? If not, set a reasonable, attainable goal for yourself (e.g., I want to have 4 months’ of unemployment budget in the bank by X date), and start setting aside the cash each month. It feels great to watch it grow! It’s like you’re weaving together your own safety net, dollar by dollar. It’s a soothing image, right?
Have you ever worked out an unemployment budget for yourself? Have you ever had to implement it? What strategies worked best for you? What did you find the most difficult? I’d love to hear about it in the comments!
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