A period of unemployment is rarely a good thing unless its planned and intentional. For the times when that’s not the case, you want to make sure you’re as prepared as possible.
I’ve had a number of clients who have had such a period, probably more than you might think! Today I want to give you my top 3 things that you can do to make sure you’re as prepared as possible.
Make sure you have some emergency savings
It’s crucial to make sure you have enough easily accessible cash savings set aside for emergencies. When something unexpected happens, like your income disappearing, you want to be prepared.
Although your emergency savings might not cover the entirety of your time off, they will certainly help you cope at the start. Three months worth of expenditure should really be the minimum you aim for but a little bit more won’t hurt.
If it only ends up being a couple of months that you need cover then at least these savings will cover you. They’ll also help you avoid panicking while you’re finding your feet!
With savings to dip into at least you won’t have to borrow straight away and go into debt.
Sophie, a client of mine, was recently made redundant. For a high flyer in her 20s this was the last thing she was expecting and it really shook her! Fortunately she had enough cash savings to cover her for a good few months so the initial shock didn’t lead to panic.
Thankfully she was able to get a new job within a few weeks so she didn’t have to spend too much of her savings in the end. The security and peace of mind she felt through those weeks because of the savings she had was significant.
Make sure you are appropriately insured and protected
The main type of protection in question here would be income protection. The most common forms of income protection will pay out a certain percentage of your income (usually around 75%) if you fall ill or injure yourself and are unable to work.
Taking out this kind of insurance is vital to protect yourself, and can help you get through a prolonged period of unemployment without having to eat through your savings.
Provided you’ve taken out the appropriate insurance and protection, this will be the best way to help you cover unemployment, mainly because of the time lengths you can be covered for.
There are different types of protection that will cover your unemployment as well as different levels of the same type of cover. Whether it is sickness, redundancy or something else that you want protection from, the key is making sure you have what’s right and relevant for you.
Having the right protection should mean that you don’t have to touch your savings and might only need a very slight budget adjustment as opposed to a complete overhaul.
Before Jamie was a client, he had a period of unemployment due to illness. Initially he was fine because he had some savings to help with the first few months. The problem he had was that those few months turned into two years. Although he was able to have some help from his family, it wasn’t enough to prevent him from going into debt.
The savings that he’d built up to buy a property were gone and now there was a few thousand pounds worth of credit card debt that he wanted to clear before starting to save again. Even though he’s still only 32, he has more protection than most people his age because he’s personally experienced the consequences of not having it.
Know your budget
When your income suddenly disappears it can very easy to panic. You start asking yourself questions like ‘How am I going to pay the mortgage?!?’
If you already know which costs are necessary and which aren’t, you will know what you can cut straight away.
The last thing you need is to have to work out how you actually spend each month!
Amy has such a great handle on her spending and saving that she was able to cope better than most when she broke her leg. It was a pretty bad break so she wasn’t able to go into work for 4 months and there was no option to work remotely.
She knew how much her necessary spend was each month and so instantly knew that she could drop her expenditure to £1000/m. That would last her 6 months and so she immediately knew that she would be ok barring any complications which gave her a huge amount of relief!
Unemployment can be scary. If you start doing some if not all of the above then you’ll ensure it’s less scary than it has to be.