How To Prepare for Unemployment Before It Happens To You
How To Prepare for Unemployment Before it Happens To You
Read Time: 4 Mins “By failing to prepare, you are preparing to fail.” — Benjamin Franklin
We have a fantastic guest post from fellow blogger Kendal, over at Perfect Cents Living today. She outlines how you can prepare an unexpected layoff. Preparing for a layoff before it happens is critical. Give this a read; there are some great takeaways. And thank you, Kendall, for being open with your process to share insights with others!
Many people don’t want even to entertain the idea of becoming the victim of a job layoff — unemployment can be your worst nightmare! This is where my husband and I found ourselves after the start of our journey to financial freedom. How were we supposed to stick to a budget while when we he was facing a job loss?
Studies have shown that only 4 in 10 Americans have savings they’d be able to rely on in the event of an emergency. In this same study, 3 out of 5 Americans experienced a significant unexpected expense in the last year.
If these numbers tell us anything, it’s that unexpected events do happen and we need to be better prepared when they come charging our way, no matter how good things are currently.
With that said, my husband and I were forced to make lemonade with the lemons that life ever so gently (eye roll) threw our way. One thing we are not is quitters. So when my husband faced a layoff from his seasonal position as a Firefighter, we looked at the rough road ahead and said: “bring it on.”
When we started this journey in January 2017, our goal was to stick to a budget and pay off our debt within 18 months. That commitment wasn’t going to end at the first obstacle thrown our way. With unemployment welcomed as the new norm and more unexpected expenses than we can count, our determination and focus had never been so crucial to our end goal.
Here is how we were able to stick to a budget while my husband was unemployed, pay off almost $6,000 of our debt, and how you can prepare yourself today if you ever find yourself in the unfortunate event of a layoff.
Unemployment Status: Confirmed
It should be noted that we knew ahead of time that my husband, Mark, was going to be laid off from his seasonal position as a firefighter. The way his position works is similar to that of a teacher’s schedule: he is employed for nine months out of the year during fire season, and unemployed for three months in the off season.
Even so, being on unemployment is not the ideal situation when trying to pay off your debts. Because we knew that his three-month layoff was approaching, we accomplished two very important tasks beforehand to help prepare us for the long road ahead. You can take these same steps and apply them now to mitigate any risk of being laid off you may face in the future.
Preparing For Unemployment
We started our journey to financial freedom just shy of 2 months before my husband’s layoff. Creating our budget was the first step on our journey! There are many different budgeting plans out there, and we picked the envelope system. This old school way of budgeting kept us on track the entire time.
I can’t stress how important creating a budget was for our success and how important it should be for yours, too! Creating and sticking to our budget was the sole reason that we were able to be so successful in getting through those months on unemployment.
Build Your Savings Account
To prepare for unemployment, we saved three months worth of Mark’s income and stashed it away in savings. He worked a hefty amount of overtime, and by the time he got laid off, we were set up to be pretty comfortable for the three months until he was hired back again.
Have you ever heard of Murphy’s Law? If not, it means if it can go wrong, it will. Things will go wrong, unexpected events will arise, and money will need to be spent to fix these problems. Members of the debt-free community call them Murphy visits.
My husband and I are no strangers to Murphy. In fact, he keeps coming back even though we’ve tried everything short of a restraining order. Here are just a few of the Murphy visits we’ve encountered so far on our journey:
- Two dental emergencies
- A trip to the Emergency room
- Had to replace all four tires on our car
- One chipped tooth
- Health insurance coverage for Mark (since he was laid off)
- Flood in our apartment
- Rent raise
- An extra 1 ½ months of unplanned unemployment
You read that last bullet point right. My husband received an email that he would not be rehired with his department for an extra month and a half after we had originally planned. Three months of unemployment now extended to 4 ½ months. Our emergency fund was stretched thin.
How We Came Out on Top
My dad used to make a joke every year on the anniversary of my parents’ wedding that being married to my mom felt like it had only been 10 minutes. “Awww,” we kids used to think, “time flies when you’re in love.” But then he’d finish off his sentence with “….under water.” All of us kids, including my mom, would then laugh hysterically and give him a good punch on the arm.
That’s just about how being on unemployment felt. Long, stressful, and the end couldn’t come fast enough. It seemed like 10 minutes…under water. Thankfully, we came out on top having not faltered from our goal even once. We managed to stick to our budget and pay off almost $6,000 of our debt! Here are a few essential steps we took to ensure that we held to our financial goals throughout my husband’s unemployment:
- We were committed. We had our financial goals written down, and we were determined to sticking to the path we paved for ourselves to get there. That debt is going to be paid off in 18 months no matter what!
- We communicated with each other. If something wasn’t right in the budget or someone was unhappy, we’d communicate about it. My husband, Mark, is my budget committee. Nothing gets approved unless he is on the same page as I am. Budgets don’t work if you and your significant other are on different pages.
- We reevaluated our budget often. Income, expenses, and circumstances change often. Along with our journey, we experienced this first hand. We revisited our budget often to make sure that it could still accommodate any changes that were thrown our way.
- We said no….a lot! This was the hardest step for us. It’s incredibly difficult to turn down that night out with friends or that spontaneous happy hour with your co-workers. We knew that to stick to our budget and remain on track to our financial goal; we would need to say no. Think about how much you spend on a night out to dinner and drinks. Now think about how much you could save if you said no. For us, we saved on average of $100 each time we turned down a night out with friends. That adds up to huge savings!
- We cut back our spending. We needed to cut back on a lot of unnecessary spending to stay on track to reach our financial goal. The biggest expense cut? Cable. And boy did it feel GOOD to cut that cord! We saved $90 per month on just this one expense. Also, gone were the days of manis & pedals, quick trips to the mall, and bikini waxes. My husband had a tough time with this step… (ugh ok, ok! It was me! I had a tough time with it!)
- The debt snowball. We focused our efforts on paying off as much of our debt that we could while Mark was on unemployment using the snowball method. The debt snowball method is a debt reducing strategy where you pay off your debts in order of smallest to largest. As each debt is paid off, you gain momentum by applying your payment from the previous debt to the next debt on your list. Although it wasn’t as much as we would have liked, almost $6,000 is pretty darn good. That’s three credit cards knocked out of the park that we’ll (gladly) never see again.
Start Preparing Now For A Layoff
As you know from my journey, situations arise that are out of our control. There is NO guarantee that your job will be secure a year, six months, or even two weeks from now. Prepare yourself today for an unexpected event, so when Murphy knocks on the door, you’ll be ready. Here are a few ways to prepare right now:
The Importance of Budgeting
A monthly budget is the best way to make certain that your hard-earned money is working for you, not against you. By creating a budget, you get to tell your money where to go instead of wondering where it went. Remember, a well-thought-out and organized budget is one you’ll stick with.
Pay Down Your Debt
How much of your monthly income goes to debt repayments? If you lost your job, would unemployment be enough to cover all of your living expenses and debt repayments? For most, this answer is a big, fat “No.”
Pay down your debt now so that if a future unexpected financial emergency arises, you are prepared. Debt is the last thing you will want to worry about when you’re facing the possibility of unemployment.
Supercharge Your Savings Account
No matter how much you think you have a handle on your finances, life has a way of throwing curve balls that you never expected.Financial experts suggest saving between 3–6 months worth of expenses for your emergency fund. Building up your savings account is financial security against the unknown. The stronger your emergency fund is before a financial emergency, the better equipped you will be to withstand the experience.
Live Within Your Means
Since you have now created your budget (right?!), you should be living within your means. This implies that what you spend each month is equal to, or less than, the amount of money you bring in every month. Living within your means will guarantee that you are not borrowing your lifestyle. In other words, you are not using credit cards to pay for things that you actually cannot afford.
Dust off That Resume
Don’t find yourself in a pinch in the unfortunate event of a layoff. Keep your resume updated and easily accessible at all times (yes, even if you’re employed). If the unthinkable does happen, you’re a quick tailored cover letter away from getting yourself back into the job-hunting market.
Whether you have a low-income job, working part-time, or on unemployment, you can start your journey to financial freedom TODAY.
Don’t wait for an unfortunate event to arise before getting your finances in order.
“By failing to prepare, you are preparing to fail.” — Benjamin Franklin
Set yourself up for success and start preparing for a financial emergency. While it may not be what you originally perceived as the BEST time (believe me, unemployment came at the worst timing), NOW is the perfect time to start thinking about your financial freedom and implementing habits to get you there.
What have you done this year to start preparing for your financial future? Leave a comment below to let me know.
Originally published at Your Money Your Freedom.