If you’ve ever watched Sex and the City you’ve probably thought, “Wow, Carrie Bradshaw is a total trainwreck.” And while it’s easy to pass judgment on a fictional character wearing a furry dress, it’s much harder to examine our own mistakes...especially when it comes to money.
Plus, when you’re unemployed, the rules of money change, making it a whole lot easier to make mistakes.
Want to avoid becoming the Carrie Bradshaw of money? Here are the three biggest money mistakes people make when they’re unemployed and what you can do right now to prevent them.
People assume that if they’re laid off they already have a financial contingency plan in place, public unemployment insurance. But most people don’t realize that federal unemployment insurance only pays about half of their full-time wages. Unless you can live off of half of your current salary, public unemployment insurance won’t cover your living expenses.
Also, just because you’re unemployed, that doesn’t mean you’ll automatically receive public unemployment benefits. To qualify, you must lose your job through no fault of your own. If you’re fired for watching Game of Thrones on the clock or resign because you’re boss posts all the spoilers, then you won’t receive unemployment benefits.
Start an unemployment fund. Unlike an emergency fund, which is used in any type of emergency, an unemployment fund is money you put aside if you lose your job. Unless you’re unemployed, you don’t touch it.
Overwhelmed by the idea of starting an unemployment fund? Otherhood helps you create a customized savings plan based on your lifestyle, income, age, where you live, and if you have other significant expenses.
Then, Otherhood calculates your monthly savings contribution and works with your employer to match a percentage of your contribution. Not only will you save enough, but you’ll save it faster.
When you have a steady paycheck, it’s easy to spend money without worrying about it. Even if you’re low on funds, the next paycheck is right around the corner. But, when you’re unemployed, there will come a day when your unemployment checks and savings dry up.
You might be thinking, “Eh, I basically know how much I spend every month,” but basically is not an actual number. If you’re plowing through your savings or living off of ramen between unemployment checks, basically won’t save your precious pennies. Real numbers will.
Even if you do know precisely how much you spend every month, you should also know how much you spend on what. Not all expenses are created equal (more on that below) and when you’re unemployed, you will need to cut back. How much and what you cut back on depends on your spending.
Get into the habit of tracking your spending. Sure, it sounds like a PITA, but it makes reducing your spending less painful and helps you plan your unemployment fund.
There are several ways you can track your spending. A good old fashioned notebook is perfect for the analog types, or you can embrace technology and use an app.
The benefit of using an app is that it downloads transactions from your checking and credit card accounts. That means less work for you, drastically reducing the PITA level.
Our favorite apps for tracking your spending are:
Expenses fall into two categories, needs and wants. Needs are costs related to your basic living expenses and are necessary for your survival.
Examples of needs are:
Wants are expenses that don’t affect your survival but help you live more comfortably. While they do improve your quality of life, wants are unnecessary expenses.
Most people do let go of some wants when they’re laid off. Things like monthly facials, your wine of the month club, and that trip to the Bahamas are the first to go.
But, the mistake most people make is that they aren’t honest with themselves about what really counts as a want. They focus on the obvious expenses and forget about day to day costs.
For example, cable TV is a want, not a need. Even if you can’t bear the thought of missing an episode of The Bachelor, you can live without it. Other examples of overlooked wants are:
You might be thinking, “My daily trip to Starbucks really is a need. I need caffeine to function!” and while it may be true that you need a cup of coffee every morning, you want to go to Starbucks instead of making your latte at home.
Make a list of your wants. If you become unemployed, you can refer to this list and cut down your spending immediately. To identify your wants, ask yourself two questions
The good news is that you don’t have to let go of all your wants. If you’re tracking your spending (ahem- see above), then you’ll know how much money you have after you pay for your needs. What’s left goes towards the wants that are most important to you.
You can learn more about how to prioritize your unnecessary expenses here.
Knowing how to avoid the most common unemployment money mistakes means that you’re one step closer to becoming the Miranda of money. And don’t worry, even if you’re a Miranda, you can still strut your stuff in a furry dress just like Carrie Bradshaw.