You should outline your total budget and determine the essential and nonessential items on which you currently spend your salary.
Because you have only one income, you are more likely to need some sort of assistance to help you through an extended period of unemployment. Before you consider a loan, though, make sure you have an accurate picture of your current expenses.
Remember that taxes in this example are approximates for a single person earning $36,000 and living in Ohio. Your own state and local taxes may vary, and you can get accurate tax information from your most recent pay stub or by calling your former employer's payroll office.
At the outset, this individual's monthly income drops from $3000 per month to $780 per month, making the budgeting process a significant challenge. However, there are many creative ways to survive for several months without an income.
If you are a single person with one source of income, your first budgeting step should be to put any severance pay you receive into savings. Hold on to any cash you have for as long as possible. Next, you should be prepared to have to borrow money. As soon as you find yourself out of a job, determine what sources you have for loans.
If you own a house, you should find out about home equity loans as soon as possible. If, as in this example, you do not own a home, you will have to look at other options. As soon as you find out you are out of work, you can call the customer service numbers for any credit cards you may own and ask to have your limit increased. If you have been a good customer all along, you should have little problem increasing your limits. Remember, you want to avoid any debt possible while you are out of work, but a higher credit card balance is better than the alternative of being unable to afford basic necessities.
As with the two-income example, the first area to cut comes automatically: monthly withholdings for federal, state, PICA, and local taxes immediately drop. Total withholding for these taxes becomes essentially zero for a single earner out of work. Already, this single earner can cut $1000 from the budget.
Nonessentials Next
Cut nonessential items first. In this example, the single wage earner should cut the following items;
Cutting nonessential items immediately cuts $690 from the budget. These cuts may seem drastic: If you lose your only source of income, you won't be able to eat out or buy clothes until you find another job. Remember, these items are not essential to your financial survival.
After the Nonessentials
After deducting taxes and nonessential items, this single earner still needs $545 per month in addition to his or her unemployment compensation. As in this example, your two largest payments (not including taxes and nonessentials) are probably your car payment and monthly rent payments. These are two payments you should negotiate on immediately. Remember, if you have a good payment history and you explain your situation immediately, you will have a better chance of temporarily reducing your payments.
Realistically, you may be able to reduce your rent payment by $100 to $200 per month. If you negotiate with the bank that holds your car loan, you may be able to reduce it by half or more, depending on the size of the loan. Because most landlords and lenders want to avoid the difficulties and costs associated with eviction or repossession, your good-faith negotiations should be met with a receptive attitude.
If you have any other debts, write creditors a letter explaining your situation and offer to make good-faith payments. In this example, a good-faith payment of $5 per month reduces this single earner's credit card payment by $45 per month. The same holds true for college loans you may still owe. A monthly good- faith payment of $10 may be enough to keep you in good standing with the bank, assuming that you write to explain your situation as soon as you find yourself out of work.
Negotiate with utility companies to reduce your payments if possible. Some utility companies have special programs for unemployed people. Take advantage of any available programs. With very tight budgeting, it is possible for this person to reduce his or her expenses to $780 per month. After the first six months, however, his or her unemployment compensation will run out and the entire $780 per month will have to come from savings. If this person is unemployed for an entire year, he or she will deplete nearly all available savings, with the exception of 401K savings.
As you can see, the key to both of these budget plans is having some money in savings at the outset. If you have little or no savings, you will likely have to borrow money to survive beyond the end of your unemployment benefit period.
