Thrift – Your Best Friend After a Layoff

A layoff attacks you emotionally, mentally, spiritually, and, most significantly, economically. Suddenly there is the demand of living as you have been but doing it on a lot less money. There could be some severance pay, and you’ve no doubt applied for unemployment compensation, but neither will keep your lifestyle going forever. Thrift is your best friend after a layoff, and the sooner you implement it, the better your chances of financial survival will be.

Here are some tips to help you through this difficult time:

1. Don’t assume the layoff will be temporary.

This is a mistake that a lot of people make in a job loss. They assume that the loss will only be temporary, and that they’ll be fully re-employed at a comparable or higher salary in no time. The consequences of this kind of assumption can be disastrous.

It’s fine – and even necessary – to be upbeat about your job search. But your financial situation requires an entirely different mindset.

Here’s the problem: If you assume that you’ll find a new job quickly, you probably won’t change your spending habits. You may be able to pull that off if you have some money saved up and your time in the unemployment line doesn’t last more than a few weeks. But if it turns into months, you could find yourself adding bankruptcy to your unemployment problem.

Do everything you can to find a new job as quickly as possible, but prepare your finances for the worst.

2. Any expense that isn’t absolutely necessary has to go.

You should cut any expenses that are not absolutely necessary, and do it as soon as possible. A few days after your layoff isn’t too soon, and doing it before your last day is even better if you were notified of the termination ahead of time.

Look at your bank records for the past six months, and track where your money goes. Cut back on premium channels on cable TV – or even get rid of cable altogether. Eliminate any entertainment-related subscriptions. If you have a membership to a gym and you hardly ever use it, cancel it as soon as you can.

You may want to consider getting rid of some major possessions as well. For example, if you have three cars in the household, and two of them have car loans, get rid of one of the cars that has a loan on it.

3. Find cheaper ways to do everything.

For food, go back to clipping grocery coupons like you did before. Find out when there are “double coupon” or discount days. Check out a food discount store, such as ALDI or Costco. They don’t have coupons, but that’s because the prices are lower all the time.

Join the trend of buying clothing from consignment and thrift stores. There might be limited choices of colors, styles, and sizes, but you’ll be surprised at the quality and name brands that show up on the racks.

Plan your car trips to conserve gas and cut mileage. Consolidate trips wherever possible. It’s not just gas that you’re trying to save, but also the wear and tear on your car that eventually leads to costly repair bills. While you’re at it, stay out of stores! The more time you spend in them, the more money you’ll spend. Recreational shopping could be your worst enemy right now.

4. Consider your healthcare options.

This category deserves a special discussion. If you have been taking advantage of employer-sponsored health insurance up to this point, you will basically have three options:

1. Extend your employer coverage through the COBRA plan
2. Take the least expensive private policy you can, or
3. Drop health insurance entirely

Regarding number one, COBRA coverage is probably going to be the most expensive option. While it may provide the best coverage you can get, that will be a luxury you cannot afford. Dropping your health insurance is another option you can’t afford. The combination of unemployment and not having health insurance is another way to end up in bankruptcy court.

The best option is to find the least expensive health insurance you can get on your own. Talk to trusted insurance brokers – if you don’t know any, ask others for referrals. Let them know what your situation is financially and which plans will work best for you.

Apart from health insurance, if you need medical attention for a relatively minor issue, go to the clinics that are available in many pharmacies. You can usually get in and out for about $50 or $60, and you can usually use their services even if you don’t have health insurance. If you take maintenance medications, contact the manufacturer – not the pharmacy – and ask if they have any special pricing programs.

5. Pay the minimums on your credit cards.

A lot of people only “get religion” about credit cards by the loss of a job. A word of advice: If you’ve lost your job, it’s already too late for that strategy. At this point, maximizing your cash flow should be your primary financial goal. That will not be accomplished if you’re making extra principal payments on your credit cards.

Instead, make the minimum payments that you need to, and keep the rest of whatever money you have to pay for necessary expenses. When you’re finally are re-employed, never forget this experience – and then you can begin paying off your credit cards with a true sense of purpose.

Embrace the financial side of your job loss. By learning to live on less money, you’ll enable yourself  to have greater control of your finances when you’re back to work. This experience will help you to be able to pay off debt and to save money once you have a job.

How has being thrifty helped you? Leave a comment!

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

All posts by Kevin Mercadante