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How to Manage Money After a Layoff

With the unemployment rate now at 9.8%, chances are that you or someone you know has been laid off. Yet the bills still need to be paid, and without that salary you used to depend on, it’s hard to know what to do first. Galia Gichon, founder of Down to Earth Finance, former Wall-Streeter and personal financial expert with a particular focus on women, suggests creating a financial plan and sticking to it in order to make the most of your savings or severance. Here’s what she had to say about spending habits, budgeting and more after a layoff:

Recessionwire: What’s the first thing you should do with your money after you’ve been laid off?

Gichon: I would say that the first thing to look at is automatic payments that you might not be aware of. Look at your credit card bills and bank statements—perhaps it’s the newspaper, video rental, the gym or charitable contributions—which can add up to hundred of dollars a month. That’s something that right away can allow you to save money.

Each month, withdraw from your savings only how much you need to live on—put that amount in your checking account and think of it as a paycheck.

This isn’t the time to completely change any kind of insurance that you purchase, because you might have a harder time obtaining coverage without a job, but what you can to do really lighten the load is increase your deductibles if you have the savings to cover it. By increasing your deductible, monthly premiums or regular premiums will go down.

The insurance that I think is a complete waste of money is identity theft insurance, which can run anywhere from $10-15 a month. Clearly you don’t want your card getting stolen, but that being said, what I would suggest is to just look at your statements and balances every week. Go online and see where your money’s going.

Have a plan for making the most of your severance; that’s a really important step. Be very clear about what you need to live on a monthly basis, and withdraw only that amount from your savings each month and put it in your checking account. Think of that monthly budget as a paycheck. That way you know how long the money will last, and you’ve got a plan for that money.

RW: How is a post-layoff budget different from one that was set while employed?

Gichon: You really want to look at your expenses in two ways: number one is the fixed expenses, and these are really just never going to change. Yes, you can reduce them, but on the whole, you get out of bed in the morning and you still have to pay them. It’s a very short list: your rent or your mortgage, utilities, medical expenses, childcare if you have it, your phone, loans, your taxes. This does not include the second category of expenses: food, entertainment, beauty, clothing, vacations—the stuff that gets us into trouble. Come up with a monthly number of fixed expenses, then set a weekly amount for discretionary expenses.

Put something in your budget to treat yourself. Clearly it’s not going to be a lot, but put a dollar amount aside per month or per week. This is a tough time, especially for people that are out of work, and if you know you have this one treat that you can afford, it can really help you through it.

Websites such as Mint.com or JustThrive.com offer free online tools that help you analyze your spending. DailyWorth.com sends out a daily email offering tips on how to manage—and make—money.

RW: If you do have savings in the bank, should you just leave it there, or are there better investment options for it?

Gichon: You want to keep it safe, so really the bank’s money market savings account is the best place for it. I would not put it in the stock market, but you can potentially find a savings account that pays a higher percentage than a local bank. Places like ING Direct, SmartyPig and EmigrantDirect all have savings accounts that are FDIC-insured and paying 2%.

CD’s are not offering much more in rates at the moment; you’re hard-pressed to find a 1-year CD above 1.5% and you’re locking your money up for 12 months. In that case, a money market savings account is a better choice.

RW: What’s the single-most important piece of advice you give to people who’ve been laid off?

Gichon: Don’t do this alone. Find a money-buddy, whether it’s someone else that’s also been laid off, or a good friend that can help keep you accountable on your budget, investments, and finding a new job.

Tags: budget, galia gichon, layoffs, personal finances, Spending and Saving