While there isn’t a one-size-fits-all answer to managing your expenses after losing your job, we’ll walk you through a way of approaching your own finances so that you can make empowered decisions for your next career move.
Start by Creating a Plan
Begin by creating a plan for your money, or revising the one you already have. A "plan for your money" is a budget, also known as a spending plan.
Prepare For Bumps in the Road
Many people we see at Credit Canada Debt Solutions come to us and say something like: “I’ve lost my job and now I’m falling behind on my payments. What should I do?”
For general information on budgets, you can check out . But in this particular instance, we're looking at a budget and how it might change in the aftermath of a job loss.
When we look at a budget under these circumstances, there are mainly two variables we look at - income and expenses. Obviously, in the event of a job loss, income has taken a hit.
Budgeting While You're Unemployed
First of all, don't worry. You will get through this, and you're probably going to find an even better job. But in the meantime, things might get a little tight, financially, so here's what you need to do in between jobs.
Your first task is to see how much of that income can be replaced, and if so, when it will start coming in. If you're looking to replace your income and you're eligible for Employment Insurance (EI), your very first stop is Service Canada to apply and start the process.
In a perfect world, it would be nice if your previous income could be replaced immediately, but unless you’re very fortunate, this isn’t going to happen. And as a result, your expenses will need to be cut to balance out your finances.
Cutting Back on Expenses
If you don’t have enough money coming in to cover all your expenses, you’re going to have to cut some costs.
The Fixed, the Variable, and the Occasional
Expenses can be separated into three separate categories:
Fixed expenses are usually once-a-month costs, and include items like rent, utilities, insurance, and so on.
Variables generally occur more often than once a month – typical examples are groceries and gas.
And Occasional expenses include things like car repairs, dental work and birthdays.
You should try to sort out your actual expenses into these three categories, and while you're sorting them out, ask yourself the following:
Can I eliminate this expense entirely, or is it a must-have?
Is it possible to reduce this expense, and if so, is it difficult or easy?
How long will it take to eliminate or reduce this expense?
Setting Your Priorities
It’s not our position to tell you what your needs and wants are; this is something you have to decide for yourself. But you must set your priorities. Ideally, you should be looking for the low-hanging fruit in your expenses – these are expenses that can be cut or eliminated with the least impact on your life. For most people, getting rid of optional luxuries happens first, followed by habitual and impulsive spending.
Here are some examples of what you might cut based on the expense categories we previously discussed:
For fixed expenses, there isn't a lot of wiggle room, at least in the short term, but some "fixed” costs, like cable TV, are not as fixed as other expenses, like rent.
Everything in the “variable” category is up for the chopping block and should be either reduced or eliminated entirely.
For occasionalexpenses, you might find that some can be reduced, and some can be postponed (e.g. clothing purchases), while others are non-negotiable, like your driver’s license renewal.
If Your Budget Still Won’t Balance
If all reasonable options for increasing income have been looked at, expenses have been examined and cut backs have been made, the next step is to look at your assets and debts.
Dealing with Assets
Assets – the things you own – present two ways of getting cash: selling them or using them as collateral to borrow more money.
If you have no assets, your only option is to cut back on your debt payments. The good news is this can be done without damaging your credit.
If you want to cut back on your debt payments without the damage, you can consider applying for a consolidation loan. The main purpose of this loan is to stretch out your debt payments over a longer period of time, and thus have a lower, more affordable monthly payment for right now.
You Have Options
If you've gotten this far but you still don't know what to do, it's a good opportunity to seek help from a in your area.
As a minimum, a credit counsellor should be able to examine your situation, inform you of the consequences (present and future), as well as suggest a possible solution.
It's important for you to know that, if needed, there are trained and accredited professionals whose job is to examine a client's finances and explore options for dealing with problem debt.