How to survive unemployment, especially when everything seems so unsure for you? Let me share with you a financial + quality of life guide to surviving unemployment and dealing with finances without a job.
My husband and I have each been laid off — twice — in the last decade.
It's not exactly something we're proud to share, but it's been our reality to go without jobs from time to time.
The fact is, most people will experience either their own layoff or their partner's layoff sometime in the length of their career.
And you need to know how to survive unemployment — both financially, and from a quality of life perspective. So, who better to learn this from then someone who has gone through it over, over, over, and over again?
Psst: are you being furloughed? You might also want to check out my article on how to prepare for a furlough, as they're different from being unemployed.
How to Be Unemployed – How to Enjoy Unemployment
I first want to talk about how to be unemployed. That may sound like an odd statement, but being unemployed is quite different from being employed.
Suddenly, you have to find new purpose to your days (specifically if you identified with your work).
You no longer commute, and you have a lot more time on your hands than you used to.
You might not have lots of adults to talk to because you're no longer forced to head into an office, and your work friends are going to wane a bit as you see them less than before.
It's an entirely different world!
You have more time than you know what to do with, and yet less money to spend to maximize all that time off. (Which, of course, is the opposite to how you felt before — you had the money, but not enough time off to take advantage of any cool trips!)
So, when talking about how to BE unemployed, I want to say this:
You need to enjoy this gift of time.
It doesn't mean you're not searching for more employment. It doesn't mean you're not worried or anxious, or even possibly depressed.
But it does mean that you may not have this window of free time again for years and years (aside from the 2 weeks in personal and sick days you get at your next job — which you WILL find).
In Fact, We Carved Out Time for a Mini-Retirement
Here’s the thing: we’ve been in this situation enough times before to have confidence in the fact that we will find gainful and (hopefully) more fulfilling employment in the short-term future. We also have cash reserves.
Though it may seem counter-intuitive, we knew that we needed to take advantage of the extra time on our plates to do the things that we value in life — things that take time to breathe.
Tim Ferriss calls this a mini-retirement, and thinks that life should be punctuated by them. I happen to agree, so long as it is in a fiscally responsible way.
In our case, it seems that we're always thrust into mini-retirements instead of choosing them, but it’s the same thing, right?
During our stint of unemployment, we went to free afternoons at the Houston Zoo, spent a long weekend in Austin, and spent an extended stay with my family in PA (cashed in frequent flyer miles!). We also extended a Thanksgiving trip and stopped by the Duck Dynasty headquarters.
These are memories we'll always treasure!
How to Survive Unemployment Financially
Let's move onto how to survive unemployed financially.
#1: Gather All Your Sources of Income
You need to add up all your sources of income so that you know what you have to work with.
For example, we had a severance package, unemployment compensation, and a GI housing allowance (because my husband was attending college full-time while working full-time on the GI bill).
While I cannot talk about the specifics of the severance package we received (one of the fine print clauses in the contract Paul signed — gotta read that fine print!), I want to stress the importance of getting a good one. Full disclosure: our severance pay definitely did not cover even close to the salary we would have received over five months.
But we did have three other things going for us: unemployment compensation, my business (you're reading it now!), and Paul's GI Basic Allowance Housing (BAH). Since Paul started school full-time last Fall, we've been receiving a BAH each month he is in classes thanks to his service in the Navy. His unemployment straddled two semesters, and he made sure to schedule them at night so that he could actively seek new employment.
#2: Get a Health Insurance Plan
It may sound counter-intuitive to buy health insurance as a way to survive in unemployment, except that life happens whether you are banking money or not (such as when I ended up needing to go to Urgent Care with an infection due to a deep cat bite after our cat was attacked by a dog several months in).
The fact is, you have to make room for health insurance while unemployed because things happen out of nowhere and the costs can add up rather quickly.It may sound counter-intuitive to buy health insurance as a way to survive in unemployment, except that life happens whether you are banking money or not. Click To Tweet
We were offered COBRA by Paul's old employer…but it would have cost us a staggering $1,837.82 per month for the same coverage we had before. In other words, it really wasn't an option for us.
UPDATE: When my husband decided to leave his next job to take another position in 2019, we were offered COBRA again. Guess how much? For our family (two adults, one child), it would cost $2,144.04/month! Egads! I'd like to find the people who can actually afford to get COBRA.
Tip: You likely have until the last day of the month on your current health insurance plan. Go ahead and get those dentist/vision/other appointments squeezed in before the plan stops and your new, no-bells plan begins. For example, when Paul was unemployed, we had already met the deductible for that year's dental plan. So, we scheduled in our six-month checkups as quickly as possible, in case we needed to get any dental work done.
Fortunately, we were able to find a very affordable plan through USAA thanks to Paul's service in the Navy. In fact, when Paul began his new job in March we found out it would cost us $600 per month for health insurance, so instead we kept our USAA plan ($193.80 per month for both of us). The deductible is high — $5,000 for each of us, and nothing kicks in until we meet this — but we knew we could cover it in emergency savings if need be. Now that open enrollment is here, we're going to switch plans.
Psst: check out my full USAA health insurance plan review here.
#3: Immediately Slash Your Spending (Some will be by Default)
If Day 1 is when he was let go, then Day 5 is when we slashed our ‘Mad Money' spending in half (that's what we each get to spend each week).
And that wasn't all.
Take a look at how we slashed our other spending categories to get ideas for how to slash your own categories:
- Gas Bill Halved: My car is much more gas-efficient than his, so each time we traveled to see his family (about an hour away) I drove. Since I work for myself and he was no longer working, our gas bill was slashed in half (he still had to commute to classes, on the other side of Houston).
- ‘Mad Money' Halved: As mentioned above, we slashed our individual weekly spending money in half. We also worked together to pay for some of the “extras” such as cat litter and medication from these budgets instead of taking more from our account.
- Audited our Monthly Spending: We were able to add $201.34 back into our monthly cash flow without much sacrifice at all. This is by negotiating our homeowner's insurance (we saved big time!), car insurance, finding better (and cheaper) cell phone plans, and getting rid of a few things we no longer used.
- Holiday Celebrations: Part of our 5 months of unemployment was over the holidays, but this didn't mean we couldn't celebrate with out-of-state family. Thanks to some frugal decadence, we scored free flights from Southwest Rapid Rewards by leveraging our credit score, and stayed with family over both Christmas and Thanksgiving. Since we had the time + flexibility, we were able to extend both trips!
#4: Make Your Savings Last as Long as Possible
Play a game with yourself — no matter what, don't take money out of your savings.
I know, I know. You'll probably need to at some point. But if every time you want to take money out of your savings, you instead ask yourself what else you could do to make your savings a black hole (as in, money goes in, but it never comes out again), the better off you'll be.
Because, let's face it: you don't know how long you'll be in unemployment. Here's an article on how to spend less money.
Now, let's talk about something you can do to prep yourself for future unemployment. This #1 tip can save you from having to live on your mother's couch.
How to Survive a Layoff Financially
If you're not already laid off or unemployed, LISTEN UP: the number one thing you can do to prepare for a future layoff is to get out of debt.
I talk about a lot of different subjects on this blog—living it up in Frugal Decadence, squeezing out savings to put towards retirement, scams to avoid, the Drugstore Game, making the most of what you’ve got—but the one subject I want to focus on today is the importance of paying off your debt load.
My motivation to talk about this comes from personal experience.
How Important a Money Buffer Has Been for Us
Creating a money buffer is one of the best gifts you can give to yourself and to your family Click To Tweet Why is that? Well, to be very honest, you never know what life is going to throw at you.
We’re the perfect example of this, as I know for sure that Paul and I had no idea what was in store for us:
+ Did I think that my husband would lose his job on Halloween? No. And yes, that was four entire months, one busted water heater, one cat surgery after an unleashed-dog attack, and one trip to Urgent Care ago (thankfully Lyla and I are fine).
+ Did we foresee our car breaking down just one month after purchasing our home in 2009? Heck no.
+ If you had asked me two days before being laid-off at my job in Florida (2008) if everything was fine, I would have confidently said, “yes”. Sometimes ignorance really is bliss.
What kept me from running around like Chicken Little in the aftermath of each of these surprises was the fact that we had savings to fall back on. But savings is hard to accumulate when you are paying down debt. So you’ve got to start there first.
It’s Hard to Create a Money Buffer when Stuck in Debt
It dawned on me the other day that if we were still paying on the debt load we shed in 2010, $950 would be leaving our pockets each month. That is more than half of our unemployment compensation.
It would be sinking us right now.
We paid off our debt years ahead of when our creditors wanted us to in the good times, and then we were able to set aside money. That buffer has ensured that we’ll continue to be fine for some time (if we don’t have to test that one out, that would be just fine by us).
Two Reasons Paying Off Debt Before Losing a Job Helps
I want to make sure you are going to be fine as well no matter what life throws at you.
Typically you cannot predict when a layoff is coming. But that doesn’t mean you cannot prepare for one. One of the best ways to prepare for unexpected work layoffs, illness, or anything of the like that we all don’t like to talk about, is by getting yourself out of debt. There are two great reasons why doing so will put you in a much better position in the event that life throws something your way:
- You can take the monthly cash flow going out the door to your creditors and instead build an emergency savings fund
- If you go through a layoff, your monthly bills will be much more manageable within your reduced income, meaning you can stretch out your emergency savings/unemployment/severance for longer
Paul being unemployed has not cast a shadow over our lives. Sure, it’s been crappy for a number of reasons. And who knows where we will end up in the next few months? But it’s also included a whole lot of wonderful, such as a lot more time together, some road trips, and an extended holiday celebration season.
You take the good with the bad, right?
However, we would not be able to enjoy these ponies among the manure if we had not prepared ahead of time by first getting out of debt on our terms. If you’d like to learn how to get out of your own debt much earlier than creditors want you to (no second jobs or ramen-noodle dinners required), then sign up to be the first to hear about my new course, The Debt Manipulator 3.0. Hint: the first four lessons will be free to everyone!
What to Do When Unemployed and Broke
If you're unemployed and broke and wondering what to do, you're not alone.
The fact is, only 39% of Americans can actually afford a $1,000 emergency. So, imagine what you're supposed to do when your paychecks stop and you get a little unemployment instead?
These tips are specifically for you.
#1: Realize that this is a Season of Life
Seasons are temporary. Your life will not always look like this, or be this hard.
Take this time as a learning experience to teach you to be in a better position the next time you get laid off. That means, when you do get that next job — and you will — pay down your debts and put money into savings so that you don't go into future layoffs broke.
#2: Go On a Spending Lockdown
You need to go on, what I like to call, a Spending Lockdown.
You need to put a big foot down on spending.
Take every category of your spending, and immediately start thinking about how to slash it by 50% (or more).
For example, can you:
- Get a roommate (you can sign a 5-month lease if a whole year scares you)
- Negotiate your insurance bills down (not to mention tell your car insurance company that you are unemployed and will be driving much less for a potential discount)
- Temporarily stop driving your car (so that you don't have to insure it — you can temporarily stop your auto insurance by paying a small amount each month so that you don't lose your history with that company), and bum rides off of family and friends. Or, if you're a two car household, then go down to just a one-car household.
Surviving Long Term Unemployment – Husband Unemployed for 2 Years
Long term unemployment is different from regular unemployment.
Instead of being laid off and it taking 2-3 months to find that right next position, long term unemployment is waiting 6 months, a year, two years or more to find that next position.
FYI, the Bureau of Labor Statistics defines long term unemployment as being jobless for 27 weeks or more.
It's a whole other ballgame.
First up, you have got to keep your head in the game. Which is probably going to be the most difficult thing out of this experience — after all, the future seems so uncertain, you're not able to do the things that you want to, and it probably seems like no one else is going through what you're going through right now.
Secondly, you are really going to have to learn how to accept help from others. If you've been unemployed for 27 weeks or longer, chances are good your funds are running low. You might have had to tap savings once, twice, or consistently just to make your rent/mortgage payment. You might be looking at your 401(k) to save you — even though you know you shouldn't because you'll need that money in retirement.
Who are the people in your life who can extend a helping hand to you during this time? Has anyone offered, and you didn't take them up on yet because you thought you'd have a job by now?
Next, you need to know when your unemployment benefits will run out. Depending on your state's laws, benefits typically run between 13 and 26 weeks before cutting off.
Finally, you'll need to start considering Plan B (probably Plan C at this point). Can you take a temporary position somewhere? Can you get a job at a local Starbucks? Can your spouse get a higher paying job, or a job (if they were a stay-at-home parent before)?
What are your options that, given the choice, you didn't want to have to take (but now might need to)? They may not be what you want, but they are still options that need to be considered.
How to Manage Finances When Unemployed
You need to stop thinking about your last paycheck amounts that you had. You know, when you earned $1,500/paycheck, $2,200/paycheck, or whatever your amount was.
Instead, you need to reorient your thinking around your new financial reality.
What is your new “paycheck” (i.e. all the other income sources you have coming in currently, like unemployment insurance, any passive income, any rental income, or really anything you're doing to earn extra cash)?
Think of this new amount as your new pot of money to deal with everything.
It might not be enough. It might be enough, but in order for it to be enough, you have to seriously cut out everything in your life (even the stuff that would marginally be considered a splurge).
Grab a piece of paper, put that amount at the top, then list out the following non-negotiable bills you have:
- Rent/Mortgage: You can reduce your rent costs by getting a roommate, or even your mortgage costs after a closing. But in general, you have to keep this cost (unless you can move in with a family member or close friend on a temporary free deal).
- Food: This means groceries. It does not mean fast food lunches. It does not mean Starbucks in the mornings. It just means enough groceries to feed you breakfast/lunch/dinner/snacks — ones you make yourself. I've got loads of ideas for how to save money on groceries.
- Electricity/Utilities: You've gotta keep the lights on. Here's tips for how to save money on electricity bill.
- Gas: This one should be reduced, anyway, so that's a plus!
- Minimum Debt Payments: Stop sending in extra or larger payments to your debts, and just go down to the bare minimums again. Also, you might be able to defer your student loan payments during unemployment.
- Insurance: We already talked about how you definitely want to keep some sort of health insurance coverage while unemployed. You don't want to be one of the Americans who go into bankruptcy from a medical emergency. Check out USAA (you don't have to have military affiliation of any kind in order to get health insurance through USAA). Now that you won't be commuting, ask your car insurance company for a discount. If you have two cars, go down to just one for now and maintain the insurance on the other one for the history of the policy's sake, but at a severely reduced cost since you are voluntarily not driving it.
Those are your non-negotiables.
You'll notice I haven't included cell phone plans or internet, or other things like that. While you do need to pay your bills in general, if you're desperate, those are nice-to-have's. You can always borrow someone's phone to make a phone call, or go to the library to use the internet.
Inconvenient? Yes. Especially during a job search. But I'd like to lay out the bare bones for you, and you can add in what else you can afford on your new income level.
Most people don’t expect to be laid off (psssst: that's why you should immediately download my Layoff Empowerment Checklist to print out, skim over, and keep in your personal file at work).
Even though Paul had an inkling the night before, and even though we technically plan for financial catastrophes anyway, it was still a shock to both of us all four times that it happened. Even now, I’m thinking “did I really just type that? Oh yeah…that happened”).
Unfortunately, in the midst of all of the emotions that come rushing to the surface, there are large decisions and steps to take almost immediately afterwards in order to mitigate financial issues and maximize the new deck of cards. So, read through the above a few times and start to prep yourself for when this eventuality happens.
And if you're in the middle of the muck right now? Well, this is a season. You will not be here forever, and you can use some of the info above to put yourself in a better financial situation once you get that next job.
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