Being between jobs can be a real test of your financial expertise. It’s challenging enough trying to live within your means when you do have a paycheck. When you don’t have one, how is it even possible?
The answer is you need a plan. Between now and the time you find that new job, you will be allocating precious resources to different types of expenses. Determining ahead of time what you can reasonably pay with credit and what needs to be paid with cash can keep you out of serious financial trouble.
If you’re already over your head in credit card bills, it may be impossible to keep up with the payments. If you have only one or two cards with modest balances, you may be in much better shape. These are ideas to consider when formulating your plan.
o If you’re not going to be able to keep up your credit card payments, call your credit card issuers immediately. Be honest about your situation. They may freeze your cards so you can’t charge more (which is probably a blessing in the long run), but they can also offer to reduce your payments temporarily to a token amount. Policies will vary between issuers, but they are much more lenient on people who stay in touch with them and let them know what’s going on.
o If you can manage some payment toward credit card bills, consider consolidating them on one card to reduce your payments. Phone each issuer and inquire about low-rate balance transfer offers. In this case, you don’t want to mention your job status.
o Also ask about an increase in your credit line. You may have to suggest you’re considering a large purchase and want to know what credit limit you qualify for. Arranging your maximum limit ahead of time tells you what flexibility you have in your financial planning.
o When you have a balance on just one card, use only that card if you’re forced to buy on credit. If you use multiple cards, you’ll end up with multiple payments.
o If your credit is in good shape, do everything possible to never miss a payment and never be late on payments. Maintaining good credit may ultimately be your salvation.
o Be stingy with the credit card. Don’t use it for everyday expenses, and certainly not for luxuries such as dinner out or new clothes. You need to preserve all of your available credit for essentials and for emergencies such as unexpected car repairs. If you’re going to cheer yourself up with a small luxury, find an odd job to raise the money, or squeeze the cash out of your budget.
Your personal savings are your first line of defense in a job transition. If you’ve been frugal, you may have enough to see you through several months. By tightening your belt, you might be able to stretch it even further. No matter how long your savings will last, you must have a budget.
o When creating your budget, create one column for expenses that must be paid in cash (rent, mortgage, or credit card bills, for example), and a separate column for essential expenses that could be paid by credit card (doctor bills or some utility bills, for example). Totaling the cash column and dividing it into your savings tells you how long your cash will last. Totaling the credit column and dividing into to your remaining credit line tells you how long your credit will last. You may discover that you need to adjust what goes in each column.
o For daily expenses, if you’ve budgeted $100 a week for everyday incidentals (gasoline, children’s lunches, etc.), start every week with $100 worth of five-dollar bills in an envelope. Remove money from the envelope daily as needed. This is a terrific incentive to stay within budget.
Unless you have significant savings or outstanding borrowing power, you may find your financial plan falling apart after a few weeks or months. Though you had been hoping to avoid it, the urgency of pursuing a menial part time job or selling prized possessions may be right around the corner. Knowing this ahead of time let’s you start planning ways to raise additional cash to tide you over a while longer.
o Establish how much time you can afford to spend working a part time job versus the time you need to preserve for finding the right opening in your career field. Target your temporary job hunt to fit your criteria.
o Make a list of possessions you could potentially sell and what you could net. Decide in what order and when you’ll need to put them on the market to realize the proceeds to keep you solvent.
Revisiting Your Plan
Your financial plan is an odd type of road map because the highways change while you’re en route. You’ll need to revisit it weekly to assess what’s changed and remap your course.