Five Budgeting Tips During Unemployment
Becoming unemployed instantly impacts the way you live, requiring you to limit your spending and potentially skip paying bills. Without a financial strategy, it becomes easy to take on additional debt to cover your expenses.
Instead of letting your finances spiral out of control, you need to find ways to deal with your reduced budget. Use these five tips to cope with budgeting during unemployment.
- Cut Back on Non-Essential Expenses
The first step to dealing with a tighter budget is to cut back on non-essential purchases. With various lockdown measures throughout the UK, it should be easy to avoid dining out too much. Other expenses to consider scaling back include video streaming services, subscriptions, and non-essential health and beauty products.
Determine how you are spending your money by subtracting your total bills and expenses from your total income. Focus on meeting your essential needs, which should include rent or home loan repayments, utilities, phone, food, and transportation.
You may also save money by changing the way that you purchase essential groceries and household items. For example, instead of ordering takeout, prepare your meals at home. Consider gathering vouchers and coupons before going to the supermarket and sign up for any available savings programs. If unfortunately if it’s near Christmas you can still celebrate but you will have to plan Chrismas on a budget
- Negotiate Lower or Delayed Payments
Many creditors are currently offering flexible payment options to help people cope with the financial difficulties of the coronavirus. You may be able to negotiate lower payments or temporarily delay payments. Some creditors may also forgive late fees for missed payments. However, you need to contact each creditor to explore your options.
Try to prioritise your debt based on its importance to your overall well-being. For example, you need to continue paying home loans and car loans to keep your home and vehicle but you may be able to delay medical bills.
If you plan on delaying any payments, make sure that you contact your creditor to find out if they offer late payment forgiveness during hardships. When negotiating lower payments or a new repayment plan, do not attempt to pay more than you can afford each month. You should be realistic.
- Take Advantage of All Applicable Aid Programs
You still need money coming in during unemployment. If you were furloughed or permanently laid off, you may qualify for unemployment insurance. The Jobseeker’s Allowance (JSA) may also help cover some of your expenses. Payments are made every two weeks and can equal up to £74.35 for those over the age of 25.
Your local area may also have food banks that provide meals to unemployed households. Between 2018 and 2019, over three million UK residents received food parcels from a food bank. Keep in mind that some food banks may only serve households with children or people with health disabilities. However, there are also national food banks that offer three days of meals to qualified unemployed adults.
- Consider Working a Part-Time Side Job
Whether your unemployment is a temporary furlough or a permanent situation, consider working a side job. Finding a part-time job ensures that you have money coming in even if it does not compare to your previous income. A common source of temporary income during unemployment is freelance work. From driving for a ride-hailing service to working as an online assistant, there are many ways to make extra money.
If you currently collect unemployment or receive financial aid, you may need to ensure that your income from the side job does not exceed a certain amount. For example, you may need to limit yourself to working 20 hours or less to continue receiving payments from your unemployment claim.
As an alternative to freelance work, consider possessions that you no longer use. If you have an old computer or electronic device, you could sell it online and earn some spare money.
- Use Savings or Home Equity to Cover Expenses
After cutting back on expenses and managing your budget, you may still find it difficult to cover your bills and buy food. Instead of getting a new credit card and racking up more debt, use existing savings or home equity.
Before using savings or home equity, determine how much money you need to survive for the next six months. Subtract your expected income to figure out how much of your savings or equity you will need to access.
Existing savings are the preferred choice for covering expenses. However, if you have no savings, you may be able to get a home equity release loan. Equity is the value of your property that you own after subtracting your remaining home loan. A home equity release loan often comes with lower interest rates compared to other loans as you are using a portion of your home as collateral.
As you continue your job search or wait for your temporary furlough to end, closely monitor your spending. If you are careful with your money, you should be able to cope with unemployment.