Managing your finances becomes extremely important when you lose your job. Your cash inflow drops suddenly and substantially, but your expenses do not lessen proportionally. The most important thing to do if you get laid off is to keep your spirits up and plan your finances carefully. Here are a few tips on how to manage your finances when unemployed.
Organize your expenses
The first thing to do is to examine your current expenses. You should make a budget with all the details of your expenses. You will have to strictly regulate every dollar that you spend. Prioritize your expenses and make sure that you never run into a situation where you do not have enough money for important expenses.
You will have to spend on food, shelter and clothes. Keep paying your insurance, electricity bills and other payments. Cut down your entertainment and communication expenses by reducing your usage of cable TV, broadband and mobile. You might find that you can pay for the newspapers, land-line and some other small luxuries that are not too taxing on your budget.
Evaluate your income
Next, you must check your sources of income. You will get some severance pay and unemployment benefits when your job is terminated. Ideally, you should have an emergency fund and other investments to give you steady income. You must check all sources of income so that you get an idea of how much you have in your hand. If you have a second income stream, then you should take that into account too.
Do not use your retirement fund
You should not break into your IRA or 401 (k) unless you are really hard pressed. Withdrawing money before a certain age from retirement accounts usually carries some penalty. There are also many tax disadvantages. Therefore, you should keep away from your retirement fund as long as possible. You might also be tempted to stop your contributions to retirement funds. It is advisable that you keep making some contributions as you get tax savings, but you can lower the amount of contribution you are making. Remember that you will no longer have the benefit of employer contribution.
Taking stock of your finances after you are laid off is very important. Having a full understanding of your income and expenses will help you manage through hard times better, and will ensure that you do not waste money. It will also save you from unnecessary tension, depression or anxiety. Once you have done that, you should religiously manage your finances until you get a new job.