Lesson 25: One Year to Financial Peace of Mind
It's not something we plan for, often coming out of the blue and leaving us devastated. But unemployment should be planned for. It should be one of the reasons we faithfully build our Emergency Fund.
Losing your job could well be the hardest financial blow you will ever receive, yet people survive unemployment; in fact the often emerge in a much stronger financial situation. I know, because I've been there.
In the space of 72 hours we went from a two income family of four to a no income family of four with one on the way. And yes, it was scary. But we survived, and indeed thrived.
And if you ever find yourself unemployed, you will too.
Severance Packages, Pay-outs and Other Hard to Handle Stuff
The first step you need to take is to asses how much money you have still coming in - usually from at least two sources (a lump-sum severance pay and unemployment benefits), income from a working spouse or partner and Centrelink benefits (FTB A and B).
Depending on why you have been laid off there may not be much in the way of a severance package. Any severance pay you receive will most likely be based on how long you have worked for the company, and any untaken leave owing.
Whatever severance pay you get it is vital that you put it away in a safe, interest bearing savings account. This, combined with your Emergency Fund, is your "income" until you find another job. Say you get the equivalent of three months wages. This money has to last you at least three months. Don't get excited at the lump sum and go on a spending spree.
By living carefully and sticking to your Spending Plan, cutting back on unnecessary expenses and living very frugally you may be able to stretch it to four, five or even six months.
Unemployment Benefits
Unfortunately not everyone who finds themselves unemployed will receive a severance package, for all kinds of reasons.
In Australia most workers who find themselves unemployed are entitled to unemployment benefits. There are conditions to receiving benefits, so you need to make an appointment at your local Centrelink office quick smart. Unemployment benefits are not backdated to the day you finished work, they start on the day your application is accepted.
Keeping Up with Insurances
While they may seem like an unnecessary expenses, your insurances such as motor vehicle, house and contents, should still be paid. This is however a great time to get on the phone and shop around for better prices, even if it means going for a higher excess.
It might seem smart to save the hundreds of dollars insurances cost, but imagine where you'll be if your house burns down or your car gets written off. You have no job, no income apart from a small unemployment benefit and no means of replacing the damaged items. And if you are still paying for them you are in an even worse position.
No matter how tempting it may be to cancel the policies, be wise and do whatever you must to keep them up to date.
Slashing Expenses to the Bone
If you've been living the Cheapskates way for a while, you have probably reached your Cheapskating comfort level. You have your expenses at a level you are comfortable with and it shows in your Spending Plan.
Now you are really going to slash those expenses to the bone.
You are going to eliminate every single unnecessary expense so that you can make your severance pay and your unemployment benefit last as long as possible.
This is the time you are going to live, well like a monk. Unless you can show directly how spending money will get you a job, you are going to put away the debit cards and begin a complete spending freeze.
Use this worksheet to help you work out which expenses you can cut and which expenses you can eliminate altogether. Remember, this is only a temporary set back. Once you have a new job and your income stabilises you can review your cut-backs and perhaps reinstate some of your favourite things to your Spending Plan.
Lesson 25 Challenge: Even if you have a safe and secure job, fill out the Flexible Expenses worksheet. Be honest and see just how much money you can not spend if you have to. Then update your blog with your findings.
Losing your job could well be the hardest financial blow you will ever receive, yet people survive unemployment; in fact the often emerge in a much stronger financial situation. I know, because I've been there.
In the space of 72 hours we went from a two income family of four to a no income family of four with one on the way. And yes, it was scary. But we survived, and indeed thrived.
And if you ever find yourself unemployed, you will too.
Severance Packages, Pay-outs and Other Hard to Handle Stuff
The first step you need to take is to asses how much money you have still coming in - usually from at least two sources (a lump-sum severance pay and unemployment benefits), income from a working spouse or partner and Centrelink benefits (FTB A and B).
Depending on why you have been laid off there may not be much in the way of a severance package. Any severance pay you receive will most likely be based on how long you have worked for the company, and any untaken leave owing.
Whatever severance pay you get it is vital that you put it away in a safe, interest bearing savings account. This, combined with your Emergency Fund, is your "income" until you find another job. Say you get the equivalent of three months wages. This money has to last you at least three months. Don't get excited at the lump sum and go on a spending spree.
By living carefully and sticking to your Spending Plan, cutting back on unnecessary expenses and living very frugally you may be able to stretch it to four, five or even six months.
Unemployment Benefits
Unfortunately not everyone who finds themselves unemployed will receive a severance package, for all kinds of reasons.
In Australia most workers who find themselves unemployed are entitled to unemployment benefits. There are conditions to receiving benefits, so you need to make an appointment at your local Centrelink office quick smart. Unemployment benefits are not backdated to the day you finished work, they start on the day your application is accepted.
Keeping Up with Insurances
While they may seem like an unnecessary expenses, your insurances such as motor vehicle, house and contents, should still be paid. This is however a great time to get on the phone and shop around for better prices, even if it means going for a higher excess.
It might seem smart to save the hundreds of dollars insurances cost, but imagine where you'll be if your house burns down or your car gets written off. You have no job, no income apart from a small unemployment benefit and no means of replacing the damaged items. And if you are still paying for them you are in an even worse position.
No matter how tempting it may be to cancel the policies, be wise and do whatever you must to keep them up to date.
Slashing Expenses to the Bone
If you've been living the Cheapskates way for a while, you have probably reached your Cheapskating comfort level. You have your expenses at a level you are comfortable with and it shows in your Spending Plan.
Now you are really going to slash those expenses to the bone.
You are going to eliminate every single unnecessary expense so that you can make your severance pay and your unemployment benefit last as long as possible.
This is the time you are going to live, well like a monk. Unless you can show directly how spending money will get you a job, you are going to put away the debit cards and begin a complete spending freeze.
Use this worksheet to help you work out which expenses you can cut and which expenses you can eliminate altogether. Remember, this is only a temporary set back. Once you have a new job and your income stabilises you can review your cut-backs and perhaps reinstate some of your favourite things to your Spending Plan.
Lesson 25 Challenge: Even if you have a safe and secure job, fill out the Flexible Expenses worksheet. Be honest and see just how much money you can not spend if you have to. Then update your blog with your findings.