Your list may not contain everything shown here, or it may have expenses this list doesn't include. Again, the important part of the process is to get as close as possible to knowing where all your money goes. Once you've created the list, look back over the last three or four months to determine how much you have been spending on each item. For some things, such as mortgage payments and car insurance, the amount will be easy to determine. Other items vary from month to month and are more difficult to track. Put down a number for every item, being as accurate as possible. Add the total to be sure that it corresponds fairly closely to the monthly income you were earning before you were unemployed.
Add Your Income
Once you have the list of your expenses, determine what your income will be without your severance payments. If you are not receiving severance payments, this figure is the total of your income from any other sources plus your unemployment compensation.
If you are currently receiving severance payments, you should still calculate your income without severance payments. Although many people do start new jobs before their severance period ends, that is not always the case. If you get used to dealing with a reduced income now, the transition will be that much easier. In addition, this strategy forces you to face your financial situation squarely, reducing the shock if your severance pay runs out, and giving you a great deal of added incentive for your job search.
As you develop your budget, then, you need to plan for the worst-case scenario. In other words, get used to living on unemployment now rather than later. If you are receiving severance pay and haven't yet applied for unemployment compensation, you should be aware of the amount you are likely to receive if you eventually do apply. In many cases, you will receive approximately $800 per month if you have no dependents, and somewhere near $1200 if you have one or more dependents. Remember, as you build your budget, don't assume you can spend your entire severance check each month. Rather, you should try to get as close to a true unemployment budget as you possibly can so that when your severance pay does run out, it's not a shock, and so that you can learn to save as much of your severance pay as possible.
Even if you honestly believe that you will find another job before your severance pay runs out, be conservative anyway. Assume that you will not find another job soon enough and start living on less now. Then if you do find another job quickly, the severance pay you have left can become additional savings for you and your family.
What To Choose
Once you calculate your new income and compare it against your old expenses, you'll realize a significant disparity. The rest of the budgeting process involves choosing what to pay and what to delay. There are a number of important factors that should enter into your decisions as you look down the list. The most important thing to remember is that, as long as you already have a reasonable financial record, most of the companies or agencies you owe money to will be willing to work with you on paying what you owe. If you contact them before the situation gets out of control, explain the situation, and offer to work out a reasonable plan for payment, your creditors will tend to appreciate your initiative and try to work with you. Above all, be creative.
Savings
You probably won't be able to contribute to savings, and may even be forced to use some of your savings to get you through your unemployment. If you do start spending your savings, keep track of how much you spend. You will "owe" yourself that money when you start your new position. Keeping track of the bill will give you added incentive to increase your savings when you start back to work.
If you do have to start spending your savings, don't touch your retirement savings. This is important because most retirement plans are tax-deferred, meaning that you may have to pay a substantial penalty in addition to the taxes that were deferred when you set up your retirement account. Your best bet is to ignore your retirement savings altogether, using them only when you are absolutely certain you have no other choice.
