Navigating Your Finances During an Employment Gap
You’re unemployed, but that’s temporary. I’m writing this strategy guide in the middle of the chaos, which is the coronavirus. Things are especially scary now, but just like in any situation you have to keep your cool and not panic.
The best way to reduce your anxiety is to have a game plan. Here are a few ideas and resources that I’d encourage you to explore.
Depending on your previous work history, you may be qualified for unemployment benefits. Although not optimal, some income is better than no income. Even if you think your unemployment status is temporary, it’s worth starting this process just in case. Best case scenario you update unemployment that you are now gainfully employed and no longer require the benefit.
Unemployment benefits are state programs and the requirements may vary based on your state. Colorado unemployment has the following requirements:
- Be unemployed through no fault of your own.
- Be able, available, and actively seeking work.
- Have earned $2,500 during your base period
Have you ever heard that making your bed makes people happier and more productive? It’s not just aesthetics, it’s the fact that you are organized. This is so critical that it’s a required part of my process whenever I begin working with a client.
Being organized allows you to have clarity. It will help you identify resources, as well as, liabilities.
The best way to get organized is to create a net worth statement. Line up all your assets and their values on the left of a piece of paper or my favorite, excel spreadsheet. Then on the right side, do the same for your liabilities?
Your assets are the resources you have access to, which may allow you to bridge the gap between your previous employment and your next employment.
How long will your resources last though?
Where Does Your Money Go?
The only way to know how long your resources will last is if you know how much money you are spending. You don’t want to stop there though; you want to identify where it is going, too.
Once you see how much you are spending on various line items, it will be a lot easier to catch glaring weaknesses in your spending habits. Tackle the low-hanging fruit first.
Next, weigh the value of expenses versus the added stress of the cost depleting your resources. You may have to really think about these things because over time we trick ourselves that we “need” things that are really just supplemental to our lifestyle but are far from required to survive.
Once you know how much you spend every month, you can subtract it from any income you may have from other sources or family members and the net amount is your projected burn rate.
Take your resources and divide them by your burn rate to see how long your resources will last.
If you have required payments to make every month, you may have some flexibility. Don’t wait, contact your creditors and see if they offer any short-term payment relief. Common short-term payment relief may be:
- Skip a payment: Exactly what it sounds like. You get to skip a payment for a month. Interest will still accrue, but if the payment is large it can make a big difference in your cash flow.
- Temporary payment reduction: instead of skipping payments, your payments will be reduced to a lower payment amount for a set period of time before returning to the normal payment. Interest will still accrue, and this will add additional time to your original payoff date.
- Debt restructure: Restructuring the debt would allow you to permanently reduce your monthly payment. The interest rate may change and the payoff date will be extended.
The worst thing you could do is stop making payments and attempting to avoid creditors. This will tank your credit score and increase your stress levels through the roof.
I have no doubt you are hustling to find a position in your field of choice, but it’s hard to apply and interview 100% of the time. If you went through the numbers above and your resources are not likely to support you through your employment gap, then you may want to explore some side hustles.
Side hustles vary substantially and if you are reading this during the coronavirus age, a couple of the common ones are not really a great option (think Uber, Food Delivery, etc.).
The higher the skillset your side hustle requires, the higher income you’re likely to generate. For example, I was contracted to create financial plans for another financial advisor while I built up my financial planning company. I had a unique set of skills and experience that allowed me to receive at least 2x the amount I could have doing a random part-time job or driving Uber.
I am not a career coach, but I’ve seen the dramatic impact of knowing someone. I was inspired to create this strategy guide through a follower on Twitter!
Coronavirus and social distance has nothing on the power of LinkedIn and even Twitter. Most people are good people and want to help. I often share random people’s content and posts regarding their story.
Post-coronavirus, you’ll want to incorporate in-person networking too.
Not everything above may be necessary for you to confidently navigate your financial life during an employment gap. I actually used a majority of them after I made the leap to start Level Up. They definitely helped me reduce stress, but be realistic with why I had to work hard to make things happen and make small tweaks to spending behavior.