Budgeting and Saving: Coping with Job Loss
Did you think about the consequences of losing a job? How would you cope with a temporary (or even longer) drop in income? Do you have a spending plan in place?
While unemployment is low or those who face even a temporary job loss and drop in income, there can a huge cause of financial and psychological stress. According to a recent NY Federal Reserve blog post, based on data from the Survey of Consumer Expectations (SCE),
"... a non-negligible share of the sample (10 percent) assesses the chance of job loss at more than 50 percent, with some individuals believing with certainty that they will lose their job over the course of the next year.
Measuring your financial health helps you asses your strengths and weaknesses around four key areas: Budgeting, Savings, Borrowing, and Financial Planning. By controlling your spending and building up your emergency savings you can prepare yourself for difficult situations.
Cutting Expenses: Budgeting and Job Loss
If you have a sudden drop in income, do you know where you can start cutting expenses? Keeping a budget allows you to evaluate how you are spending money.
The authors of the NY Federal Reserve blog post, Expecting the Unexpected: Job Losses and Household Spending, asked, “What types of spending do households prioritize and which ones do they cut when the head of the household becomes unemployed? They analyzed spending across four categories, “housing-related expenditures (such as purchasing a house or spending on home improvement), car-related spending, spending on other durables (such as electronics, household appliances, and furniture), and vacation-related spending.”
As expected, their findings showed that vacation related spending was the first to be cut, followed by spending on durables. The least affected was car-related spending, possibly because a car is essential to finding a new job.
Your budget allows you to see exactly where you can trim your spending. Are you paying too much for phones or entertainment programs? Can you cut your grocery bill? Are you paying too much interest on your debt? Budgeting may not be exciting, but many apps make it easy to do.
Job Loss and Savings
Since so many people are considering that a job loss and drop in income is a real possibility you would expect that households are saving up money and prepared to deal with an emergency.
The surprising fact is that according to a 2017 report the Federal Reserve estimates that:
“Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money”.
Creating an emergency fund helps tide you over for a short period. One popular rule of thumb is to have an emergency savings fund to cover at least six months of spending. Check out the emergency fund calculator below to see if you are prepared.
Emergency Fund Saving Calculator
Calculate Your Emergency Fund Needs
Are you concerned with a drop in income? Need to consider how to cope with a job loss?
Use BIlls.com's simple Emergency Fund Calculator to find out how much you need to save in an emergency fund. Calculate the amount you need, based on your income and budget, and the number of months that you want to cover. Once you have your target, compare that to your current available emergency fund savings.
Keeping a budget helps you understand how you are spending your money. A deeper analysis allows you to discover which are your basic expenses. Do you keep a budget?
Calculate your essential monthly expenses. Think about a case where you don't have income for a short-term and you need to cover you essential monthly expenses. You can cut out luxury items, but there are may bills that can't be avoided.
There is no one size fits all answer. However, most experts recommend at least three months of living expenses in an emergency fund savings account. Our recommendation, is that you set a goal to have at least six months of liquid assets that are in a safe andn easliy accesible account.
Now check your actual savings against the amount you need in an emergency savings fund. The calculator willl assess your situation and give you a quick recommendation.
Job Loss and Your Financial Health
Losing a job is just one type of emergency. Like most households, you have probably had medical emergencies, car repairs, home repairs, or need to replace an appliance.
The most significant difference in losing a job, even temporarily, is that each month you need to come up with a source of money. However, the common thread is that by preparing yourself correctly you can avoid getting into debt. Proper spending and good saving habits are vital ways to stay financially healthy.