Imagine your boss invites you in his cabin and asks you not to come to the office from next day. How will you feel? Your will jump out of your skin, you will get a knot in the pit of your stomach, your brain will halt, your heart will thump against your chest, anxiety will creep up your spine, and your legs will be numbed. It will seem like a horrible dream.
When you are laid off, you are likely to blame yourself, but employers do so in order to downsize their business. As you get an unexpected layoff, you feel like thrown in at the deep end, especially when you were not mentally prepared for finding a new job and you do not have a side gig. As a result, you rely on your savings for your day-to-day expenses and guaranteed loans for unemployed to finance any big expense unless you land a new job, but many borrowers fail to manage money and fall in a debt cycle.
It is paramount that you frugally spend your money when you are out of work. It is definitely not a loan that causes financial disturbance. Here are money mistakes that you commit along with tips to avoid them.
Mistake 1: Spending without planning
Experts say that people do not change the spending criteria after losing their jobs. They continue to buy anything as long as they can and eventually fall short of cash. Loans can undoubted help you tide over, but it does not mean you will be reckless with your spending. Once you borrow, you are to pay interest on the top of what you owe. Of course, this is your out-of-pocket expense that you will pay from your net worth. If you spend mindlessly, your expenses will take over your income and you will fall in a debt cycle.
Tip: You should immediately cut down on your expenses after losing your job. Create a list of expenses to see what are essential and what are non-essential. Do not spend money on things that are not relevant to your need. Procrastination is not a bad idea so long as the expense is not mandatory to incur. Before you pay for anything, make sure that you will not run out of money for other expenses as well as paying off the debt.
Mistake 2: Not creating a budget
Budgeting seems difficult and hence many people fight shy of it. Financial experts suggest that you should make a budget regardless of your financial situation to track your expenses. If you keep spending without knowing where your money is going, you will definitely get in debt. During unemployment, not only you have to track your expenses but also figure out how you can save extra money.
Tip: You must create a budget whether you like it or not. It might seem very hard, but it is not rocket science. Jot down all sources of your income such as rental income, freelancing, part-time job, unemployment benefits and your monthly expenses. You must have a record of even a tiny expense. Do not forget to mention the payment made by a credit card. A written record of all of your monthly expenses will give a clear picture of your financial situation. Unless you know where your money is going, how will you cut down on irrelevant expenses?
Mistake 3: Not cutting down irrelevant expenses
There is no use of making a budget if you let all figures on spreadsheet. Experts assume that many people create a budget just to make them realise that they are on the track. They do not spend even a few minutes to take a look at it to know how much money they have spent throughout the month, and if they do so, the written record does not align with actual figures.
Tip: Your duty does not end as you make a budget. It is needless to mention that your budget will be worthless if you do not find out the areas where you can pare down your spending amount. When you make a list of expenses, you will find many of them irrelevant. For instance, gym subscription, magazine subscriptions, club membership etc. Even though they do not cost too much, but after a while they do add up. You should also cut back on restaurant visits, night outs, cinemas to save more money. The more money you save, the better it is. Having a higher net worth can help you meet all of your expenses effectively.
Mistake 4: Not having a side gig
You cannot rely on savings unless you land a new job as it may take forever. It is important that you find out a part-time job to fund your needs. Many people avoid the need of having an extra source of income, but it can benefit you tremendously.
Tip: As you lose your job, you should immediately find out a part-time or freelancing job. Do not be depressed if you have not got a freelancing project. In such a case, you should opt for odd jobs like walking a dog, cleaning services, washing cars, and the like. Additional income source is a must to borrow money from a direct lender.
The bottom line
When you are jobless, you should create a budget, carefully plan your spending, whittle down all nonessential expenses and start a side gig. You must remember that you can take out unemployed loans only when you have an income source to prove your repayment capacity.