You should always prepare your finances to expect the worse. This is not really about being pessimistic. In fact, it is you being realistic. One of the things that you can do for your loved ones is to ensure that your family finances can withstand the worst economic storms that this country can face in the future.
The Great Recession taught us how quickly a situation can spiral downward if you are not prepared for unexpected events. The main reason why a lot of people suffered during the economic crash of 2008. They were not prepared financially when the economy fell and they had a lot of debts. The combination of job loss and their debt load is too much for anyone to handle. This is why people lost their homes and even relationships.
While the economy is going strong, you should not feel complacent at all. According to the data from the Bureau of Labor Statistics, the unemployment rate in May of 2016 went down by 0.3%. This is a good sign that more people are able to finance their needs at home.
But for how long? While a job is the best way to make your financial position stable, it is not the only way to do so. If you lose your job, how do you think your finances can survive the stress? You need to prepare your finances for the possibility that you can lose your job – because your employer can quickly decide against your job security if the odds are not in your favor.
Important steps to financially prepare for unemployment
Of course, nobody wants to be paranoid about the future. But it is helpful to put yourself in a state of mind wherein you know that you will lose your job. At least, until you have finished securing your financial position. This mindset can help you prepare your finances without getting distracted. Sometimes, seeing our savings grow will make use feel complacent and will probably convince us to stop saving. That should not be the case. Keep on preparing your finances until you are sure that you can lose your job tomorrow and still be in a sane financial situation.
With this mindset, let us assume that you will lose your job in the next few months. Of course, that does not happen in reality. Most of the time, there is no warning. But for the sake of motivating yourself to prepare your finances, opt to have this state of mind so you can accomplish these tasks.
Analyze your financial situation.
Start by analyzing your financial situation. You have to check your savings, debt, and expenses. These are the three main areas in your life that will be affected by a job loss. First of all, you have to check how long your savings can support your existing lifestyle. Then, you have to check how you will pay off your debts. Just because you lost your source of income, you will no longer be expected to send payments. Your creditors and lenders will not care about that – so you will still be required to pay what you owe them. Finally, you need to look at your current expenses because you need to start tightening your spending.
Boost your emergency fund.
After analyzing your finances, the first thing that you need to work on is your savings. This will be your source of funds while you are unemployed. Make sure you have at least 6 to 9 months worth of living funds. With the few months that you have left working, you need to seriously put aside money to grow your emergency fund. As much as possible, you should base your emergency fund target on your usual monthly expenses – not a frugal one. That way, you can afford to stretch your emergency funds for up to a year if it is really necessary.
Identify areas where you can downsize.
Obviously, to reach your saving goals, you need to downsize. In a real case scenario, you might be forced to move into a smaller house or give up your 2nd car. But since we are just pretending, you might want to identify the expenses that are going to unnecessary purchases. It is time to lower your spending by making wise choices about it. While you are at it, you may want to make a list of the things that you can do to downsize – in case the real thing does happen to you.
Communicate with your creditors and lenders.
Your debts should also be part of your concerns. As mentioned, your job loss will not remove the responsibility of paying off the debt. Look at all your debts and rank them by priority. Pay off as much balance as you can. In a real job loss, you should immediately call your creditors to ask them for a repayment program that will help you continue paying off your debts even if you are unemployed. Some of them can help you through deferment and others can help by lowering your interest rate.
Create a new budget.
With everything that you have accomplished so far, it is important for you to start thinking about creating a new budget. Come up with a frugal budget that you can follow – one that will allow you to stretch your emergency fund for as long as it possibly can. Keep this budget in mind – it will keep you from losing your mind in the event of an actual job loss. A budget is a great way to maintain control over your finances – even if your world is crumbling around you.
Search for potential sources of income.
Finally, you have to start building other sources of income. According to an article published on <CNBC.com, a lot of people have found that freelancing helped them feel more secure about their jobs. In fact, some people have opted to resign from their 9 to 5 careers to venture into the freelancing world. While you are not encouraged to do this while you have yet to prepare your finances, setting up other sources of income can help secure your financial position. That way, losing your primary job will not leave you with nothing. Even if it is a small amount, having several sources of income can really help.
Tips to survive unemployment
Unemployment is a difficult situation to be in but it is not impossible to emerge from it unscathed. Here are some tips that you can use to help you survive this trying time in your life.
Do not give in to depression.
According to a study published on Gallup.com, the longer Americans are unemployed, the more likely they are to compromise their psychological well-being. One of the danger lies in depression. The feeling of being useless and unproductive – it can really do nasty things in your mind. Although it is normal to feel sad, do not give in to this feeling. It will make thing even harder for you.
Make searching for a job your job
You should also start searching for a job. Give yourself a week, at the most, to rest and get your wits in order. After that, you have to drag yourself out of bed and start aggressively looking for a job. Make that your job every day. It will keep you focused and will help you avoid depression.
Keep yourself occupied in between job search.
In between searching for a job, you have to think of other activities to do. Volunteer in your community. Sometimes, helping the less fortunate will make you feel better about your situation and will give you hope for your own life. You can also use the free time to set up passive sources of income.
Be strict with your spending.
Lastly, you have to be very strict with your spending. You need to learn how to manage your money while you are unemployed and it all starts with your spending. This is the right time to be disciplined with your finances. If your food budget is only $500, then stick to that amount each month.
There are many strategies to prepare your finances and you have the freedom to choose the option that will make you succeed. While pretending to be in the midst of an impending job loss is extreme, the right mindset can help you reach your goals. Choose the right strategy that suits your personality and poses to motivate you the best to be successful in preparing your finances.