What would you do if you were laid off from your job today? This question isn’t meant to make you want to hide under your desk, but to encourage you to evaluate your circumstances. What would happen to your financial situation if you suddenly didn’t have an income to rely on?
While it’s not exactly fun to plan ahead for life’s hardshipsâsay, your car breaking down or losing a jobâdoing so can help you stay afloat financially and avoid taking on debt to remedy an already tense situation.
What can you do to prepare your budget for a layoff? These four steps will help you prepare your budget for a layoff and survive a layoff financially:
1. Put some of your paycheck into savings
In order to prepare your budget for a layoff, one of the best things you can do is learn to live on less when you have your typical paychecks coming in. Living paycheck to paycheck is a reality for many, and a habit many promise to break once they earn more. If you can afford it, consider trying to live off only a portion of your paycheck. That way, you can always depend on having extra money to fall back on in the event of a hardship, like a layoff.
Jill Caponera, a consumer savings expert at coupon platform Promocodes.com, suggests paying yourself firstâputting some of each paycheck into savings before you spend any of itâin order to save for an unexpected job loss.
“Put money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency,” Caponera says. Try scheduling an automatic recurring transfer from checking to savings that hits after each payday, or create a direct deposit to savings from each paycheck through your employer.
If living on less isn’t feasible for you right now, start small and focus on taking baby steps to prepare your budget for a layoff. You could start with a money savings challenge and a more attainable goal, like living off of 97 percent of your paycheck and saving the remaining 3 percent. This means that if your take-home pay is $4,000 a month, your goal is to put 3 percent, or $120, into savings monthly and then limit your bills and spending to $3,880. As you get accustomed to that amount, gradually increase the percentage of your paycheck you save each period. Some budgeting experts suggest saving at least 20 percent of your income and living off of the other 80 percent.
If you devote even a small percentage of your paycheck to savings before the bills and discretionary expenses roll in, saving will eventually become habit. You’ll get used to budgeting only with your post-savings take-home pay, and you won’t miss the savings portion of your paycheck.
âPut money directly into your savings account the moment you get paid so that you’re never in a position where you’re strapped during a true financial emergency.”
2. Save 3 to 6 months of expenses in an emergency fund
Once you’ve gotten used to regularly saving a portion of your income, you can save for an unexpected job loss by building up a solid emergency fund over timeâespecially if you are using an online savings account with a high interest rate. An emergency fund is a dedicated savings account that you only touch in the event of financial hardship, such as a medical emergency or job loss.
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Christian Stewart, founder of financial coaching site Do Better Financial, recommends having an emergency fund of three to six months of expenses to help you survive a layoff financially.
“The goal is to make sure all your bases are covered, meaning you can pay the bills and proceed with a relatively normal life until you find another job,” Stewart says. She notes the actual amount of money you need to save for an unexpected job loss will vary based on your lifestyle, employment industry and willingness to relocate, since this can dictate how long it could take to find another job.
To build an emergency fund and save for an unexpected job loss, Stewart recommends starting a zero-based budget. This form of budgeting gives every dollar you earn a job, such as paying a bill, funding your emergency account or financing fun and discretionary expenses. In addition to making your emergency fund a priority, this budgeting strategy helps you identify exactly how much you spend within each budget category each month. You can then find areas of careless spendingâperhaps an unused subscription serviceâwhere you could stand to cut back. You could redistribute those dollars to your emergency fund.
“In the event of a layoff, you will have a clear line of sight to regular areas of your spending that can be cut if it takes longer to find a new job,” Stewart says.
After you’re comfortable with the size of your emergency fund and feel like you can survive a layoff financially, you can use any extra savings for a different financial goal, such as saving for retirement or a down payment on a car or home.
3. Find income from a side hustle
Another way to survive a layoff financially is to have a side gig in place. Contrary to what some believe, side hustles do not have to take up an onerous amount of your time. There are actually many side hustles you can do while working full time, such as freelancing in your current field, driving for a rideshare app or tutoring.
Not only do side jobs create extra cash flow to devote toward savings or debt repayment when you have a full-time job, they also give you an added layer of security to help you save for an unexpected job loss. You might not be able to replace your full-time earnings with your music lesson business, but it can provide you with some predictable cash flow while you interview for a new position.
You could even turn your side hustle into a full-time job if you have a passion project you’ve been wanting to turn into a career. Alternatively, your side hustle turned full-time gig could help maintain your income stream if you plan to take additional time off after a layoffâif you decide to go back to school or make a move to a new industry, for example.
4. Know where to turn for assistance
Being laid off can be a traumatic experience, and if it does happen, it is important to know where to turn and how to make decisions that aren’t rooted in fear or emotion.
“Sit down with a level-headed friend, spouse and/or counselor to process your new financial reality,” Stewart of Do Better Financial says. “If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
Speaking of work benefits, make sure you utilize all of the benefits possible before your layoff goes into full effect, such as getting an annual physical through your health insurance plan.
âSit down with a level-headed friend, spouse and/or counselor to process your new financial reality. If you’re receiving a compensation package, do yourself a favor and work out beforehand where the money will be spent and how long you need it to last.”
“If you’ve been laid off, or are expecting an upcoming layoff, you should immediately contact your state’s unemployment office to set up your account and start receiving your compensation,” consumer savings expert Caponera says. “While these benefits won’t pay as much as your full-time salary, these funds will certainly help to cover your monthly bills and living expenses while you continue to look for work.”
Each state has different benefits and paperwork requirements, so make sure you’re using your state’s government website to learn more and to survive a layoff financially.
Prepare your budget for a layoff
Facing a layoff can be emotionally and financially draining, especially if you don’t see it coming. The most important thing is to start planning ahead, and prepare your budget for a layoff before it happens.
The post A Step-by-Step Guide to Prepare Your Budget for a Layoff appeared first on Discover Bank – Banking Topics Blog.
When I first connected with Julia and John, the Queens, NY couple was expecting their first child and grappling with some debt, a lack of savings and income prior to the baby’s arrival. The couple was basically living paycheck to paycheck and in need of some advice to break through that cycle.
We reconnected this month to see how they’ve been doing. Julia is now nearing the end of her third trimester. The baby is due to arrive in two months.
I was hoping that with a baby on the way the couple would have found some ways to chisel away their debt or bulk up savings. Unfortunately, fie months later, they’re more or less still in the same money boat.
But they did act upon a couple of my tips and are benefiting from the goodness of New York and their parents, which has their futures looking brighter.
First, John, who lacks a college degree and was struggling to find full-time work, is going back to school. Not to a college or university, but to a 9-month software boot camp in New York that’s going to give him the skills and network to become a software developer. His potential earnings in the first year in the market could be as much as $75,000 (based on some people I know who’ve gone through similar programs in New York.)
The program will be about $15,000, a fraction of what it would cost to earn a bachelor’s degree. John’s parents have agreed to loan him the money. The couple’s decided to place that $15,000 family loan in savings and, instead, take out a small student loan to pay for John’s school. I agree with that strategy, given that their family is about to increase in size and having some cash on hand will be very important.
Once John completes school and finds work, I’d recommend the couple prioritize the credit card debt by paying at least double the minimums each month. Be most aggressive with the highest interest credit card debt first. Their student loan will likely have a smaller interest rate and can be paid over a 10-year period, making the monthly minimums relatively manageable. Automate those payments as soon as possible and benefit from a 0.25% interest rate reduction when they do.
While they’re taking on more debt, I’m okay with it. Investing in John’s education is one of the best ways this couple can get ahead and better secure their finances in the future – so long as they commit to earning more and paying it down.
Ahead of that program starting, John’s also taken on a side hustle (per my advice). He’s been working a few shifts here and there at Julia’s company, working with special needs patients as a social aide, taking them to community and outdoor events.
Some other good news that’s developed since we last spoke is that New York State has enhanced its Family and Medical Leave Act by implementing Paid Family Leave. In the past, certain employers were only required to provide workers with their jobs back after taking a leave of absence for up to 12 weeks. Now, qualifying private employers must provide paid time off and a continuation of health insurance for 8 weeks in 2018.
This came as a surprise bonus for Julia, who was preparing for zero paid time off from her employer.
It would be my recommendation to use part or all of that extra money to pay down their high-interest credit card debt.
Once Julia returns to work after her maternity leave, her mother-in-law will be the go-to caretaker during the day, another huge help.
They’re fortunate to have free childcare from a trusted, loved one. With that very big expense covered and John’s schooling about to start, I feel confident that the couple’s future is a financially bright one.
The post Check-In: Expecting Couple Struggling with Debt, But Future Looks Bright appeared first on MintLife Blog.