Three Ways to Make Your Unemployment Savings Last Longer

You probably think of your savings as the most prized possession of your finances. You may even get a little Gollum-esque when you think of them, spending hours staring at your balances online and hissing “my precious” every time an auto-transfer goes through.

And while you may be becoming a borderline Misty Mountain creature over your savings, the truth is that there may come a time when you have to use them. Like if you end up unemployed. 

Even though it’s hard to imagine letting go of those sweet double digits that you’ve racked up, there are ways to soften the blow and stretch your savings. Here are three tips for making your savings last longer when you’re unemployed.

Know how much money you have to work with every month

One of the best parts of a paycheck is knowing exactly how much money is coming in and when. But when you’re unemployed, your income comes from multiple streams, and not all of them are on a set schedule or amount. 

Sure, your unemployment checks and Otherhood savings may be predictable, but what happens when you really want those artisanal pork rinds and don’t have the cash? Should you dip into your savings to cover this week’s grocery bill?

You’ll save yourself a lot of sleepless nights and make your savings last longer if you commit to a monthly income allocation. This, like your paycheck, is all the money you have to work with every month. 

The first step is to identify what your unemployment income streams are and the amount of each one. Start with your guaranteed income streams, like your public and private unemployment disbursements. Will they be enough? Remember, public unemployment insurance only covers about half of your full-time wages. 

If unemployment insurance covers all the bills, then you’re done- that’s your monthly income. If not, you’ll need to allocate your savings strategically. 

So, how much should you transfer every month? That depends on how much you need, what you’ve saved, and how long you think you’ll be unemployed. 

The average person is unemployed for about 22 weeks, which is five and a half months. But, other factors impact how long you’ll be unemployed, like when you lose your job and how competitive your industry is. If you think you’ll be unemployed longer, take that into account. 

Now, take the amount of savings you’re willing to live off of and divide that by the number of months you think you’ll be unemployed. This is how much you’ll transfer every month. If you have more than you need, you can tweak the numbers and leave some savings in the tank.

Here’s an example: You need $4,000 a month to cover your bills. You think you’ll be unemployed for 6 months. Your public unemployment insurance is $2,000 per month. You have $10,000 saved. You’ll transfer $1,666 from your savings each month, for a total income of $3,666. 

But I’m still $334 short of what I need!

You might be tempted to transfer more savings every month to make up the difference, but don’t do it! Think about your savings like your paycheck, this is all you have until next month. Which means, now, you need to work on cutting down your expenses. 

Cut out non-essential expenses

Not everything you spend money on is absolutely necessary. And while it may feel like you can’t live without your Netflix subscription, the truth is that you binge watch Stranger Things at your parent’s house.

The first step to cutting out non-essential expenses is to identify them. This is harder than you think because non-essential expenses hide inside essential expenses. For example, food is an essential expense. But is eating out? Nope, that’s non-essential. 

So you stop eating out. But whenever you go to the grocery store, you splurge on local, raw milk that’s delivered fresh daily, which costs $5 more. While buying milk may be essential, getting the Mercedes of milk is not.

Non-essential expenses are also things that you can do yourself but are paying others to do because it’s more convenient, like house cleaning, car washes, and pet grooming. Or they can be expenses that have a cheaper alternative, like taking a Lyft instead of the bus. 

Make a list of your non-essential expenses and their amounts. Some may be obvious, like your monthly massage, while others could be harder to identify, like your organic baby cucumber addiction. 

Next, prioritize the expenses from most important to the least. The most important are the ones you genuinely don’t feel like you could live without. The least important are ones that you wouldn’t miss, or maybe even forgot that you were spending money on!

Start at the bottom of the list and cut out expenses, adding up the savings as you go. Once you’ve cut down enough to fit in your unemployment budget, stop. The idea is that you reduce your spending without sacrificing what’s most important to you. 

Here’s an example: You need to cut down your monthly spending by $334. Here’s your non-essentials list, in order of importance:

The expenses you’ll cut out are:

Not only will you save $389 per month, but you also get to keep living the high life with your fancy milk. 

Spend what you have, not what you wish you had

It may sound obvious, but this is one of the biggest challenges people face when they’re cutting back expenses. You just did all this work to reduce your spending, but what happens when your besties decide to take an impromptu trip to Vegas? You don’t have the money, but the plane ticket is just one credit card charge away. 

Credit cards make us feel like we can afford stuff when we really can’t. We think, “Oh I’ll just pay it back next month,” but next month comes and there’s no room in the budget for an extra credit card payment. The interest racks up, and the following month you have an even bigger bill to pay. 

You could use your savings, but then you risk not being able to cover all your expenses next month. What happens if you can’t afford the grocery bill? It gets put on the credit card. 

When you’re unemployed, the last thing you want to do is start incurring credit card debt or using your savings to pay off your credit card bill. A good rule of thumb is if you cannot pay off the charge immediately with your monthly unemployment income, don’t charge it. 

If you like using credit cards for points, make it a habit to pay off your credit card every week. That way, you can see the impact of your expenses on your bank account in real-time and make spending adjustments as needed. 

Following these tips can help you avoid a Gollum level meltdown if you do ever have to use your savings while unemployed. Plus, if you keep enough of your savings in the bank, you can go back to your nightly routine of lightly stroking the computer screen as you stare with adoration at your account balance. 

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