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How to Help Keep Your Finances Healthy During a Job Transition

by MoneyNing

With the current rate of unemployment and the fact that many jobs are still hanging by a thread I want to share with you some ideas on managing your budget during a job transition.  For the last decade I’ve worked with the program participants of many outplacement firms.  Over the years they have learned from me and I have learned from them the following ideas to help keep your finances in one piece during a job transition.

Step 1: Know Where You Stand…

In the world of financial planning we use what’s called Net Worth to assess your financial health.

Your Net Worth is calculated by summing up your assets and subtracting your liabilities.  This will allow you to establish a baseline of your financial situation.  The purpose of this exercise is to help prevent you from a major setback to your Net Worth.  Therefore, being aware of where you stand will allow you to manage your finances with a higher degree of sensitivity and awareness.

If you need something to help jog your memory of the different categories to consider click here to download a list.  Whatever your do, get a good idea of all the available resources you have so you can really get yourself prepared to manage over the coming hopefully short period until you find new a job.

The best place to start is to review everything that contains information about your finances.  Take the new found time on your hands and give yourself a financial makeover.  Review all your assets and liabilities, this means your investment accounts, credit cards, insurance, your will or trust (yes, you should have one of those) and review all these details.

Additionally, review where all your money and liabilities are held, as well as what interest rates you are paying.  When you were working, these were the things that may have been in the back burner so you should now get these up-to-date.  The objective here is to get a tight grip on your current financial situation, and figure out your plan for the coming months (there are software that helps you do this as well, like eFinPlan. For more, here’s a very in-depth review of the online financial planning software).

As I mentioned earlier, in the world of financial planning this is:

Asset – Liabilities = Net worth

As you complete this exercise you should also make a side note of miscellaneous resources.  For example reward points on your credit cards.  I once had a client buy her daughter’s school supplies at the start of the school year with her rewards points.  Another side item would be how much available credit you have as well.

Ok, so let’s suppose you have calculated your net worth and have a good idea of all the resources your have on hand.  The main objective moving forward is to make sure you don’t let your net worth go too far south – and that leads us to Step 2.

Step 2: Determining Your Cash Flow…

Now you know where all the resources are and where you stand financially.  The next important step is to know what your cash flow situation is.  This is what will keep you going in the weeks or months to come.

Managing your cash flow is another barometer of financial health that is used in financial planning.  I always stress to my clients that during this period it is especially important to stick to a budget.  Budgeting your cash flow will keep you disciplined and prevents you from tipping the apple cart with your spending.  I like the way John Maxwell explains having a budget “A budget is telling your money where to go, instead of wondering where it went.”  Need help here as well trying to figure the line items click here for a list.

This is especially important because of your current circumstances, where you have a finite amount of resources available from say a severance package, personal savings and unemployment compensation.  Your cash flow will be your lifeblood over the coming months.  Therefore, you’ll need to manage it wisely.

If it hasn’t occurred to you yet there are some do’s and don’ts.  For example, now is not the time to remodel your kitchen, take a lease out on a new Jaguar, and resurface the driveway!  Now I know that may sound almost like I’m telling you that you should brush your teeth and comb your hair in the morning; but it still is worth saying.  You’d be surprised how many people I meet with that justify spending an outrageous amount of money to completely update their wardrobe because of all the interviews they have to go on.

With that in mind if after you go through your budget and you need to make adjustments consider all your opportunities to trim down your expenses.  For example:  Shop for cheaper auto insurance, cut coupons for groceries, shed all those features from your phone bill.  Remember, luxuries become necessities after we experience them.  You were just fine without email on your phone a few years ago.  Well, you get the picture.  Bottom line if you need to, comb through your expenses with a magnifying glass and determine for yourself what are the “nice to have’s” and the “have to have’s” My experience has shown me only you can figure that out, for example caller id might not mean that much to one person but it could mean a lot to someone else that lives alone.

Your goal should be to be able to forecast your monthly expenses to the nearest $250.  These two steps that I’ve outlined for you can help you establish a clear budget and help preserve your finances from being ruined or suffering a major setback.  The idea here is imagine if you were stuck up in the mountains during a blizzard, wouldn’t you ration the rate you place wood into the fire and eat the remaining food?  Well the same goes for now.  After having gone through your budget and available resources you should be in the position to answer to this next question for yourself because it is absolutely, positively critical…The question:

“How Many Months Can I Go Without Working Before I Start Heading Backward Financially?”

So for example you figure you’ve determined you have about $15,000 of cash on hand among savings, your severance package and a CD that you have.  After redoing you budget and cutting here and there your monthly expenses are $3,000.  Now you know you have about 5 months before things can get sticky for you.

The answers here are important because you have to get your time line in order.  Being aware of your available resources will help you protect your financial standing.  The other reason that it is important is because it helps with your job search.  You can know when you may have to accept the “B” job that you’ve been offered or you’re willing to commute a lot farther.  Or maybe, how much time you can take it easy or how much time you don’t have.

Another point I want to mention that given the circumstances I recommend that you do all you can to keep your cash on hand.  So yes under normal circumstances it’s true what your mother told you that you shouldn’t carry a credit card balance.  However I suggest that for now just try to siphon your money out, just pay the minimums on things.  Sometime I see folks that have received their severance in a lump sum and they have a lot more money in their checking account than they are accustomed to.  Their natural inclination is to start stroking large checks to pay off their bills.  I submit to you don’t run and do that.  Once you find yourself on steady ground then go ahead and pay off your credit cards with any extra severance money you have left over but for now keep your cash close at hand.

There you have it, a two step process to get you to change gears financially and make sure you keep yourself on the right path.  If this was helpful keep an eye out for future posts that I am working on that include issues about Health Insurance and COBRA, protecting your credit, and the how some of the parts of the American Recovery and Reinvestment Act of 2009 can help you.

Unfortunately, because of industry compliance regulations’ I cannot have open comments on any of my posts.  However, I would love to hear from you.  Please send me your comments or questions to me directly at david.fontaine @ raymondjames.com (without the spaces)

This is a guest post from David, who writes on his blog about various financial subjects. He’s also a Certified Financial Planner who resides in the Miami area if you’d like to speak to him about your finances.

Tagged as: Budgeting, Career, Money Management

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{ 4 comments… read them below or add one }

Keith March 31, 2009 at 8:44 am

Very good article. I especially like step one because you have to no where you are before doing anything else! It’s also important to know how long you can without an income. I’m going to implement some of your advice. Thanks!

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Kate March 31, 2009 at 1:02 pm

Thank you for this excellent and detailed post. Often times, we’re told not to “sweat the small stuff”, but as your advice shows, paying attention to the little things is what will help us prepare for the possibility of a major life event like a job loss. The idea of “The Power of Small”, that small things can make a big difference, is such a huge force in terms of your financial wellbeing and I think your post was spot-on.

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Craig March 31, 2009 at 1:34 pm

It can be difficult, I recently did it and had to restrict what I did to a degree to make sure I had enough saved up till I started my new job and began collecting a check again. But it can be done, just need to plan.

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ThinkingFinance March 31, 2009 at 3:38 pm

When you don’t have a job, its important that you figure out how much money you have, then put yourself on a budget. At least you’ll know when you need to work again. However, of equal importance is using credit cards to pay for expenses if possible since it is so difficult to find a job in this environment. Just my thoughts….

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