“ Taking control of my finances quickly during a period of layoffs not only helped me save over $1000 a month but also enabled me to better cope with job loss and be financially prepared."
By: Allan R Kirby
One of the biggest stressors in life many of us have today is job security, it's something that we worry about often. Unfortunately, it's a new reality, many of us will be faced with job uncertainty at least once or twice during our careers. Usually, it seems to happen at the worst time in our lives and when we are least prepared.
"How do you prepare for an unexpected job loss? Unfortunately, you need to always be both financially and mentally ready. It can be a physiologically traumatic event so the better prepared you are the better you can cope."
I have lived through job insecurity in my career and I can tell you it can be incredibly stressful and very difficult to live through. Although I made it through a period of job loss and incredible uncertainty, I learned several valuable lessons that greatly helped me. Hopefully, these tips can help you if you are in the same position today as I was.
“I learned quickly that ignoring a problem does not make it go away, you need to tackle it head-on.”
My Experience and Tips that I learned
When I learned my employer was going to downsize I knew that doing nothing or waiting it out was not the right approach for me. I felt I needed to get control of my finances immediately, it was a top priority when faced with this uncertainty. Additionally, I found that focusing on my finances during this period had a positive psychological impact because at the time I felt I was doing something I had control over, secondly it helped me get a clear idea of my current financial situation.
So when I started looking at my finances to ensure I was prepared for job loss, I quickly realized I did not have a good emergency fund but my debt was low and I did not have any high-interest debt. Although I was not in a bad position, I needed to think about how I would be able to survive if I was out of work for an extended period. As a result, I learned how to live frugally which helped me save money, cut debt, and build a real emergency fund.
Tip #1: Cut spending significantly
I could have assumed that I would find a job and would never need to worry about my financial situation, but there was no guarantee this would happen. As a result, I took action immediately to cut my spending significantly and as quickly as possible. This was not easy but I knew I needed to fundamentally change my spending habits and be very frugal.
($300 in savings per month)
This was key to my success, downsizing. Going from a 2 bedroom to a smaller single can save you a significant amount of money in a short period in time. There are some upfront costs with moving, but over the long term, you can save a bundle if you can move. I found I could save as much as $300 a month just downsizing to a smaller apartment. Sure it's great having a large apartment, but I didn't need it.
Now you could also look at subletting your extra room but if you're not looking for a roommate, a smaller apartment can work, which is what I did. Now understandably this is not for everyone and of course, it's rather difficult to do if you own a home and have a family, however renting out a room could be an option.
($100 in savings per month)
Another way I downsized was to start walking and taking the bus more often, now this may not be possible for everyone, especially with COVID-19 but it is an option. Other possible options are to downsize your car to something smaller that is less expensive to drive and maintain. You could also look at ride sharing such as Uber and Lyft.
In my case, I downsized my car and started taking the bus while also walking more often. I did not save as much as I originally planned, plus I had to learn to take more time to get to and from work. However, overall the adjustments did help me save about $100 per month.
($500 in savings per month)
I recently wrote another article on discretionary spending to cut, this is where I saved a significant amount of money by reducing my dining out and cutting back on entertainment. I even stopped going out to lunches at work. I was able to save just over $300 a month on restaurants as well as an additional $200 when I stopped spending on entertainment and travel.
Learn to Love Sales
($100 in savings per month)
I will admit I had stopped looking at sales and deals for groceries once I got a good job. I did everything possible to save while I was in university but I had become a little lazy and I just went to the store around the corner, which was much more expensive than a discount store. So I had to swallow pride and learn to love sales and discount stores again. Now it was not significant but I feel I saved about $25 a week. I also got much more clever when it came to clothing as well, I learned to go to outlet malls and on a few occasions scored some great deals.
So how much did I learn to save?
$1,000 a month! It might seem crazy but it's a fact, I was able to make significant spending cuts and adjust my lifestyle. All of the savings went to either savings and getting the debt paid off. These adjustments allowed me to be better positioned for job loss and my adjustments also allowed me to stay financially sound long after my job loss.
How much money should I have saved if I lose my job? You should have at least three months, but I would suggest as much as 6 months. But cutting your spending significantly will help you stretch your money by months.
Tip #2: Save money
As I had mentioned before, I did have a small emergency fund at the time my employer announced there would be layoffs. However, I felt it was not enough so unlike most of my coworkers I took action immediately to ensure I was in a good position if and when the layoffs came. What I did was to take as much money as I could and put it into a savings account. Now the biggest reason why I did not invest my money was that I did not want to take a chance of losing money in the stock market. My timeline of possibly using the money was months not years.
Protecting my retirement savings
Building my savings was important because I did not want to touch my retirement savings,
I wanted to protect it at all costs. This is something that I felt was critically important at the time. Additionally, most of the money I had was invested and I did not want to sell my investments as it was helping me build my retirement fund even if I was cutting back contributions.
"If your employer is still offering matching contributions try and take advantage of the free money while you still are employed."
(Savings per month $20)
This was something I am glad I did, I learned to love free banking with banks such as Ally online. To this day I will not use a bank that charges me fees to hold my deposits and do basic banking. I use an online-only bank for most of my transactions and this has saved me on average $20 a month or about $140 per year. It's not much but every penny counts. It's sometimes little fees such as this that can eat into your money.
Tip #3: Cutting debt
(Savings per month $25)
I was a little lucky in the sense I did not have a lot of debt, however, the first thing I did was to just pay off any remaining debt I had on my credit cards and cut the number of cards I had to just one. Once I did this I only had one low-interest cash back credit card, I no longer own any high interest or fee-based credit cards. Even today I have kept myself to just one credit card per month. By eliminating all of my personal debt I saved about $25 per month in interest. If you have more debt, you can save a lot more.
As a general rule, I tell people to get rid of the high-interest debt first then move to your lower interest credit cards, one you have a credit card paid off, just get rid of it and keep only one card that has; low fees, low interest and provides cashback.
"How can I use my credit card to build wealth? You can by taking the money I make from a cashback credit card and deposit into a retirement or investing account."
Is losing your job the end of the world?
No! I have gone through it. First, let's be clear, it can be incredibly tough to lose a job under most circumstances but can especially be hard if it's a job you have been in for years or one that you loved. It’s also a big life-changing event. Don’t kid yourself, it will affect you long after you have lost your job. The best you can do is to try and prepare financially for job loss, you will be glad you did. It takes a lot of pressure off you when it does happen and allows you to focus on finding a new job.
"How do you survive financially after losing a job? Cutting expenses immediately, save money and reduce debt. The reality is, quick action and tough decisions need to be made to stretch your money and help you survive longer."
Now I did not mention everything I saved money on and believe I ended up cutting my expenses by $1100 a month. This was significant but it was not easy and took a lot of discipline during a time of high stress and uncertainty. However, I can tell you that taking action immediately was the smartest thing that I did. I hate to say it but many colleagues of mine did not, they chose to continue ignoring the situation and they were hit hard with the layoffs, while I was able to get through it with a lot less stress due to getting myself financially prepared for job loss.
Hopefully, these tips will help you if you are in the same position I was.
This is a MySmallBank.com blog written by Allan Kirby, who writes and produces Personal Finance and Money Management articles and videos.