Saving While Unemployed: Bills Are The “Big Rocks” You Need To Avoid

So you have just heard that you will be joining the 524,000 people who became unemployed last month. I hope you followed the advice to have a cushion of money in savings. If not, you will have to rely on unemployment for cash. But whatever the source of your money, you will have to stop spending much of it as soon as possible. However, there are always bills to pay. A report discussing tax rebates as a way to stimulate the economy said that one of the cons was that people often used the money to pay bills instead of spending it. Of course, paying bills is a form of spending. And paying bills will account for most of your spending when you are unemployed, the only place you need to do a lot of shopping is the grocery store. It may not help the rest of the economy, but it is what you need to do.

Prioritize Your Expenses

To start planning a budget, you need to find out what your unemployment benefits will be (say $326 per week, for example). This varies by state, but will be about $1,500 per month. It usually lasts 26 weeks, but may be extended during this recession. Once you know how much you will be getting, you can start planning your budget. You’ve probably heard the example of filling a box with big rocks and sand. You have to put the big rocks in first, and pour the sand around them. The big rocks will be housing payments, health insurance, tuition payments, and car payments. Figure out if you can make these payments, or how you will reduce or eliminate them if you can’t afford to keep paying them. Eliminating them will mean big changes to your life, but if you make the choice quickly, you will be able to survive longer, using the money you have for other necessities.

Rent or mortgage payments are likely to be the biggest part of your spending. If the payments are less than about $700, you can consider staying where you are. If you are renting, you could also move in with friends or back in with your parents. If you don’t have a place to move to immediately, start scanning the classifieds a cheaper place for when your lease expires. Most likely, you will have to keep paying until your lease expires or your apartment is rented. If you are paying a mortgage, the choices are keeping up your payments or walking away. If your budget shows you can almost make your mortgage payment, talk to your bank. If you come to them with a good plan they might be able to lower your payment. You should also consider renting out a room. Walking away is not a good choice, but the point of looking at your budget is to see if you would be forced to walk away soon anyway. In that case, looking for a cheaper place to live now is the better of two bad options. Utility bills are linked to how you choose to handle housing. Moving in with your parents or friends will eliminate these, although you will probably be expected to pay some towards their bills. You can try to use less electricity, heat and water. Turn the heat down to 65, and wear warm clothes. Sell off spare TVs and electrical gadgets to earn money and save electricity, many draw power even if you leave them off. If you are paying for both a cell phone and land line, cancel one or the other. A cell phone is better if you are not sure where you will be living. Cancel cable TV.

Another big part of your budget will be health care. Here you may have the choice of continuing your current coverage under COBRA (the Consolidated Omnibus Budget Reconciliation Act), which lets you keep you employer’s health care plan if you can pay for it. If you can’t, you have other choices: finding a cheaper individual policy, or saving the most money by becoming uninsured as well as unemployed. Most people decide they can’t afford COBRA. If the choice is between some other health insurance or none, compare quotes at www.ehealthinsurance.com. There are plans under $150 per month for one person.

School expenses will be a big problem for parents with kids in college or private schools. There are no really good answers. College kids can try to get scholarships, financial aid or work-study jobs at their school, but these are not always available. Parents can consider putting their private school kids in public school instead. However, this might conflict with the reasons they chose private school, and kids do not usually like changing schools.

Car payments are another big expense. You will have to decide whether or not to keep the car. First, you should be saving on gas by only going out when you absolutely have to, such as for a job interview, employment workshop, or to get food. If you can find another way to make these trips, you do not need a car. If the car is paid off or you absolutely can’t get around without it, keep it. If you absolutely need it but can’t afford to keep it, ask about trading it in for a cheaper model. If you sell your car, you will also save on insurance and registration fees. You can shop for lower auto insurance on www.progressive.com

Food is the last major expense of an unemployed person. You should leave about $200 in your budget for it, but it is not a single payment. If you don’t have much savings, you may qualify for food stamps, which give $21 a week or about $100 per month. You can check out you eligibility for food stamps at www.fns.usda.gov/fsp/applicant_recipients/eligibility.htm

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