Learn more about Richard on NerdWallet’s Ask an Advisor
The economy has recovered from the Great Recession, or so we’re told. Still, nearly every day during the past year, I’ve received a call from a client, friend or acquaintance looking for financial — and occasionally emotional — guidance after a job loss.
Even through the initial shock of losing a job, I’ve noticed that some of these people quickly embrace “personal financial safety mode.” They spring to action immediately to protect themselves and their families while maintaining clear heads. This isn’t easy.
My experience with these people has helped me create a “survival list.” The following steps and philosophies help keep households together financially through turbulent periods.
Put pride aside
Fiscal-storm survivors aren’t afraid to apply for social benefits. For example, several people I know have taken advantage of Supplemental Nutrition Assistance Program benefits through the U.S. Department of Agriculture.
Each state has a website where you can apply online. You’ll be asked to pick the types of benefits and services you need, and you’ll be able to view your state’s monthly income limit for eligibility. In Texas, a family of three can make as much as $2,763 per month and receive $511 in SNAP benefits.
Surprisingly, state agencies are flexible when it comes to approvals. I’ve known several people who’ve negotiated benefits although their incomes exceeded state limits.
You might also be able to apply for unemployment benefits on your state’s workforce commission website. You’ll need to provide information on the type of job separation you experienced and your past wages. States typically base your benefits on the amount you were paid in four of the past five completed calendar quarters before the effective date of the initial claim.
Reduce your expenses — fast
In my observation, the people best prepared to handle layoffs review their budget — or formulate one —within hours of getting the news. They scrutinize each expenditure, no matter how small, and put unnecessary spending on the chopping block. It’s interesting how the definition of “unnecessary” broadens when you’ve lost a job.
I’ve created a “core and satellite” budget strategy to help people in these situations. Core expenses include rent and electricity, and satellite categories form rings around the core in order of importance. If you find yourself in a crisis, you’ll cut from the rings farthest from the center immediately. This might include expenses like premium media channels and restaurant meals.
It’s a greater challenge to reduce your expenses as you move closer to the center, but it can be done. For example, several people I’ve worked with redefined cell phone service as a satellite expense. They replaced their phone contracts with prepaid phones or pay-as-you-go plans and monitored their usage on a regular basis.
Fiscal-storm survivors who’ve been away from the workforce for six to 12 months are receptive to selling property and moving to smaller houses or apartments. And I’ve recommended that those out of work for a year or longer relocate to less expensive cities and states. In some cases, families moved in with elderly parents or had parents live with them to share expenses and preserve or bolster cash flow.
Begin the purge
It’s difficult to comprehend how much stuff you’ve accumulated until you’re prioritizing it for possible liquidation. You can use cash from selling unneeded items to fund day-to-day expenses, such as groceries, kids’ school activities or occasional inexpensive luxuries such as family pizza or movie nights.
You might find that the purge mentality persists long after your layoff crisis is over. There’s a sense of empowerment in reducing clutter, and for many people, I’ve seen this grow into a healthy habit, or even a stress reducer. You might also find that your perception of spending is reshaped, and that you’re making a conscious effort to minimize unnecessary purchases.
If you’re dealing with a layoff, you’re living lessons that many people would rather avoid. But the habits you’re developing will prepare you to weather other financial setbacks — and if one never hits, all the better. Cutting expenses and doing more with less is never wasted effort.