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How to Financially Prepare for Unemployment

how to prepare for unemployment

“You’re fired!”  Words nobody wants to hear, but everyone needs to be prepared for.

The best time to get prepared for unemployment is while you’re gainfully employed. If you’re not financially prepared to lose your job today, then it’s time to make your budget great again!

How To Prepare for Unemployment (financially speaking)

There’s nothing like losing a job that will force you to quickly whip your budget into fantastic shape.

If you’ve ever been fired or laid off then you know what I’m talking about. One of the first things you do, once the shock has worn off, is give your budget an immediate and major overhaul.

When you’ve unexpectedly lost your income, you also suddenly gain a super power that allows you to identify even the tiniest of holes your budget. And when you start to scrutinize every penny spent, on every single purchase you make then you come to realize that many of the services and items you’ve paying for are pure luxury.

MAKE YOUR BUDGET GREAT AGAIN

And I’m not talking Mercedes-Benz-type of luxury, but rather the totally-unnecessary-and-the-only-reason-you-have-that-expense-is-because-it-makes-your-life-way-more-convenient type of luxuries:

  • Random purchases from the app store
  • Eating out daily
  • Buying extra “stuff” whenever you walk into a store
  • Frequently updating your wardrobe
  • And the obligatory … buying expensive coffee

Where before you saw little-to-no wiggle room in your budget, you’re now able to spot huge, gaping holes that are just begging to be plugged.

So you start plugging holes, and cutting expenses, and dialing things back a bit, which is great.

CREATE A FINANCIAL EMERGENCY PLAN

The obvious problem with whipping your budget into shape after you’ve lost your job is that you’ve lost your job and have your income.  Which means that you’re unable to leverage your new kick-ass budget to get ahead financially.

Bummer.

That’s why I find it useful to review my budget from time to time as if I’ve just lost my job, while I’m still gainfully employed. You get all the benefits of an airtight budget while still being gainfully employed, so you’re able to use your newly found monthly surplus of cash to eliminate debt, or put that money to work for you by investing it.

When you’ve got a spare half hour, give this exercise a try.

Take a look at your budget under the pretense that you’ve just lost your job. See what you’d eliminate from you budget and what makes the cut. Doing this will help you prepare for unemployment by making your budget great again!

The best time to prepare for #unemployment is while you're gainfully #employed. Doing so could make the difference between financial success or failure. #fired #jobloss #unemploymentinsurance

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Chime in!

Have you ever lost a job?  How did you handle it?  Were you financially prepared to weather the storm?

By Ty Roberts

Ty Roberts is the founder of Camp FIRE Finance, and a husband and father of four living in the Seattle area. He's a fan of the 4% rule, 80s movies and music, dad jokes and cast iron cooking.

2 replies on “How to Financially Prepare for Unemployment”

Great post!

I’ve never been unemployed, but I started my own consulting firm from scratch. Which meant zero income for a while. So, yeah, during that period, no-frills living was the order of the day.

Then, maybe just because I was busy running the firm, my living expenses didn’t really change that much as income blew up.

So I completely agree with your points here – powerful stuff for building wealth fast! Thanks as always for the good work!

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