In the past couple of years, many of us have watched colleagues, friends, and even family members grapple with the loss of their job or face a substantial pay cut. For many of us, it has driven home the fact that even seemingly secure jobs might vanish overnight.
But even if one’s monthly income were to decrease or cease altogether, the same is not true for our financial obligations. While such unforeseen events cannot be avoided altogether, one can take a few steps to ensure that such emergencies can be overcome with minimal distress.
While worrying doesn’t solve much, having a plan to manage financial challenges can help ease some of the stress. Plus, the monetary benefits of dealing with financial problems paying off bills, saving more and reducing debt can help improve your overall outlook. Here are some suggestions for tackling your money stress and taking control of your finances.
11 Tips for Dealing with Financial Stress after a Job Loss
The following are the tips for dealing with financial stress after losing a job:
1. Identify top sources of Financial Stress
If financial anxiety is weighing on you, start by identifying the specific issues keeping you up at night. Whether the problem is credit card debt or upcoming bill payments, pinpointing the source of your stress will help you determine your next move.
- Write down your biggest money challenges.
- Keep the list short to help you feel less overwhelmed.
- Revisit your list every three to six months or as your circumstances change.
2. Stay Future-Focused
It’s easy to get stuck in the past and what shoulda-woulda-coulda happened, but didn’t. Doing so only perpetuates destructive emotions that fuel anger, self-pity and a sense of powerlessness. Focus on the future, and on what you need to do to set yourself up as well as possible on the job front, in how you are budgeting your money, and in your relationship with those who can help you find a new job. What you focus on expands, so focus on what you want, not on what you don’t.
3. Revise your Budget
If you have lost your job or are facing a salary cut, your monthly cash inflow will be lower even if it does not hit zero. So, you will have to take a closer look at your monthly budget and revise it in line with your current income.
To make the budget, you have to look at not just your revised income, but also your expenses and savings. Once you have this information, you need to figure out if there are opportunities to reduce any of these expenses. You should consider reducing the amount you save every month only after you have exhausted all avenues related to decreasing your monthly expenses. Also make sure that you avoid the common budgeting mistakes when creating the new budget.
4. Build an Emergency Fund
Having money set aside for an emergency such as car repairs, job loss or illness can go a long way towards relieving financial anxiety. However, building an emergency fund can seem overwhelming, especially one with enough to cover three to six months of expenses. Don’t get hung up on the amount what’s important is that you’re consistently setting money aside.
5. Avoid Taking on New Debt
The one thing you should avoid at all costs, at this time, is to take on debt such as a personal loan or a loan against your credit card. These loans might seem like a relatively easy way to get out of money troubles in the short term, but there’s a catch.
The interest rates you have to pay for these loans can be as high as 24% p.a. What’s more, due to lower income after your salary cut or no regular income due to job loss, these interest rates can be even higher as you will be considered a high-risk borrower by banks. So, in the long term, you run the risk of falling into a debt trap and find it difficult to pay off your debt.
6. Eliminate or Reduce Optional Expenses
In your original monthly budget, you would have probably set aside some money for optional expenses such as eating out, catching a movie at the cinema, magazine subscriptions, etc. While you can try and completely eliminate such expenses during the current emergency, it might not be possible. What’s more, if you try and live too frugally, you might end up resenting your new budget making it difficult to stick to it.
So, instead of trying to eliminate these expenses altogether, you could try and focus on reducing these to the bare minimum. Additionally, you can also try and come up with low-cost alternatives. For example, opt for a family movie night at home instead of an evening outing at the theater or cooking dinner together as a family instead of eating out. If you put your mind to it, you will probably be able to come up with many more such activities that are fun but require you to spend little or no money.
7. Be strategic about Reducing Debt
Credit card debt is a common source of financial stress. Not only is it expensive it can also get in the way of your savings goals. The anxiety antidote: a plan to pay off the debt. If you have balances on multiple cards, consider using the snowball method (paying off your debts one-by-one, focusing on the smallest first) or the high-rate method (concentrating on the cards with the highest interest rates first).
8. Use Systematic Withdrawal Plan for Regular Income
Unfortunately, not everyone plans for emergencies equally well. So, you might not have built a sufficiently large emergency fund or worse might not have saved for an emergency. If you have exhausted all other avenues to make ends meet such as cutting expenses, decreasing savings, augmenting your income with freelance jobs, etc., there is one last option. As a last resort, you have to start withdrawing from your existing investments.
If you have invested in Mutual Fund schemes, consider redeeming your investments via a systematic withdrawal plan (SWP) to generate regular income over an extended period of time. While doing this will impact your long-term financial goals, it is still a better option than taking on additional debt.
9. Treat finding a job as a job
If you feel the need and can afford to do it, give yourself a break for a few days or week or two. But assuming you can’t afford a year sailing the world on the Queen Mary, don’t take too long before returning to your familiar routine. Create structure in your day. Sure you have more time on your hands than you had before, but you will be amazed at how little you can do in a day if you aren’t intentional about what you want to get done. Create a job search plan with goals and small manageable steps. Then prioritize, structure your day and treat finding a job as a job.
10. Augment Your Income with Freelance Work
If you are in between jobs and are on the hunt for a new job full-time, you should consider taking up freelance jobs. Currently, there are multiple websites that are specifically dedicated to matching the skills of freelance workers with potential clients in need of such skills. You can also consider doing the same to augment your income in case you have faced a significant pay cut.
While the income from freelance jobs might not be as regular as a monthly salary, it does provide you with two benefits. Firstly, any earnings from such freelance work will help you augment your income. Secondly, these freelanced projects can also help you hone your skills while providing additional networking opportunities that might come in handy in the future.
11. Consider outside help
If you’re not satisfied with your progress in reducing debt, you may want to seek help from trusted resources, such as the Federal Trade Commission and the National Foundation for Credit Counseling. Or if you want guidance on long-term goals, such as saving for retirement or college, financial advisors can help. Finally, your friends and family may be able to offer support just make sure to set clear boundaries and expectations to avoid damaging those relationships.