No one is immune to job loss. When this happens, once the shock of the bad news wears off, you need to quickly reorganize your finances to successfully weather the storm without too much damage.
• Also read: Signs that you are overspending
Employees who become unemployed can usually claim unemployment insurance.
However, these benefits begin to be paid a few weeks after termination and do not cover 100% of the compensation. To overcome these financial difficulties, you need an action plan.
Here are some ways you can put the odds on your side.
The importance of foresight
Julie Brissette, budget adviser at ACEF de l’Est de Montréal, points out that every case is different, but there are basic principles that can be relied on.
“It is ideal to have built up a safety buffer of three to six months of expenses beforehand, in which we can collect the necessary sums to compensate for the drop in income,” she emphasizes.
This cushion also prevents you from using the balance to make up the shortfall.
Keep in mind that using credit cards is very expensive given the high interest rates, which are often around 19.99%.
“Furthermore, many people don’t realize that if you don’t pay it back in full by the due date, you will accrue interest on the entire balance, even if you’ve already paid off part of our debt,” warns Julie Brissette.
The budget, your best ally
If you’ve never had a budget, now is the time to create one! There are several free tools available on the internet.
“Your budget will likely be in deficit after losing a job. You need to analyze it thoroughly to adjust your spending to match your new income,” recommends Julie Brissette.
While fixed expenses tend to be difficult to modify (rent or mortgage, local and school taxes, insurance, daycare costs, electricity, etc.), you will likely find it easier to respond to variable expenses such as free time, trips, restaurants, groceries, clothing, streaming subscriptions -Platforms etc.
“If you’ve lost your job, you can certainly reduce your transportation costs as well, since you no longer have to go to work,” notes the household adviser.
She adds that by entering the amounts spent in an Excel file, for example, you have a better idea of what’s coming out of your wallet and spend less on unnecessary things.
Adjust instead of going into debt
“One of the recurring problems when you lose your job is trying to maintain your standard of living with credit. The problem is that this practice is not only costly, but also risks leaving us in chronic debt that we will never get out of,” says Julie Brissette.
If possible, adjust your budget to your income or, if there is no other option, use a lower-interest loan, especially a credit line.
The counselor also points out that if you lose your job, you also have more time at your disposal. Take the opportunity to cook more but also renegotiate your telecom package and insurance.
tips
- Putting aside spending for three to six months can be daunting because it seems difficult to achieve. Start setting a more realistic goal, say the equivalent of one month. Even a few hundred dollars saved will come in handy in the event of a job loss. And once you’ve found a job, think about topping up your emergency fund.
- Direct debits are the best way to save. Schedule them on a regular basis at the time of your payment if you are an employee. The money should be deposited into an account other than your checking account.
- As the saying goes, it is better not to hunt several hares at once. If you have lost your job, temporarily suspend your payments into your retirement assets. You take them back when you find a new job.
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