Beating Broke

Personal Finance from the Broke Perspective

How to Stay Afloat after Losing Your Job

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Losing your job is a really hard thing to face at any time, whether you saw it coming or not. You likely feel very overwhelmed with thoughts of how you are going to make rent next month or afford groceries next week. But it is important to keep a clear head and act fast to set yourself up for success as soon as possible so you can find new work.

Here are a few important steps that you should take within the first few days to week of your unemployment. They should help stabilize you and get you feeling sane enough to do what you need to do to find a new job.

  • First Step: Apply for Unemployment

If you qualify for it, make sure to start filing your unemployment claim on the day you lose your job. You may feel overwhelmed by the whole situation, but it’s worth it to start filing as soon as you can. The process to receive unemployment can sometimes take a few weeks.

  • Second Step: Look at What Savings You Have

Take a moment to look at what you have saved. Take inventory of your different accounts and what severance you may have gotten so you know how much you have and how long that might last you. For this type of situation, you can also dip into your emergency fund as losing your job unexpectedly definitely counts as an emergency.

  • Third Step: Tighten Your Budget

Now that you have a better idea of what actual cold hard cash you have at your disposal before you are able to obtain a new source of income, you can plan out a tightened budget. Yes, it’s not pleasant, but cutting a few costs out of your budget for the next few months won’t kill you. Temporarily cut out all the expenses that aren’t essential, like subscriptions, gym memberships, cable, coffee, eating out, etc. By tightening the wallet, you ensure that your savings last until you are able to find a new job.

  • Forth Step: Look After Your Debt

Next you should try to contact any creditors that you may have. If you reach out to them, they will be much more likely to help you out during a financial crisis. Lenders may offer options that could reduce or temporarily suspend your payments until you are employed again. The same goes for your student loans. If you call your student loan servicer, you could likely choose from several different options like deferment, forbearance, or an income-based repayment plan.

If you really don’t have enough savings to get you through this time, then maybe you need a loan to cover you until your unemployment kicks in. Whether you get a personal loan, credit union loan, title loan, or anything else, make sure you do your research so you’re aware of what you are getting yourself into before making any final financial decisions in the heat of the moment.

Get these things in order and then make job hunting your new full-time job. Following these steps is a sure-fire way to make things happen quickly. With determination and hard work, you won’t be unemployed for long and then you can get your finances back in order.

Image source: Eric Ferdinand

How to Build Your Financial Foundation

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“Can I afford that?” 

If you’ve ever asked yourself this question and not been sure of the answer, it’s time to establish your financial foundation.

Think of a gleaming, towering skyscraper.  It didn’t appear out of thin air.  It took months of preparation and carefully designed installation.  Most importantly, that skyscraper’s construction started with its foundation.  Then, floor-by-floor, it was eventually completed.

The key point here is that the foundation came first.  It’s an absolute necessity to the stability and longevity of the building.  Without it, the tower would crumble.

Your financial foundation works the exact same way.

Without a proper financial foundation, your finances will never be in perfect harmony and you will never be financially stable.  Moreover, you’ll never relieve yourself of financial stress, which is a heavy burden too many people bear.

Financial foundations are an easy concept, but they take a mindful, dedicated approach to put together.

Sticking with the building theme, your foundation will consist of three “pillars”:

  1. Short-term money
  2. Emergency money
  3. Long-term money

Pillar #1: Short-term money “STM”

Your STM reserve will be used to cover your active, day-to-day expenses.  Think groceries, rent, utilities, etc.  Although there isn’t a universal dollar amount, there is a guideline you should follow to determine how large your STM reserve should be.

Follow the below steps to determine your STM reserve:

  1. Calculate the amount of money you usually spend in a month. If you use a debit or credit card, you can use your monthly account statements as estimates.
  2. Take this dollar amount and multiply it be three.

That’s it!  That number is the amount of money you should have set aside for your short-term expenses at any given time.  For example, if your monthly expenses are $1,000, you should have $3,000 in your STM reserve.  This covers the volatility and variance of your expenses.

Let’s face it, we’re all human.  Some months you’re going to spend a little more than others, some months you’ll spend a little less.  But with a STM reserve, you’re covered.

This will ease your day-to-day financial stress.

Pillar #2: Emergency money “EM”

Think of your EM reserve as a rainy-day fund.  You can’t predict your next fender-bender or doctor’s visit.  So, you need to have EM at the ready for such an occasion.

Again, there isn’t a universal dollar amount, but the calculation is easy: take that same monthly expenditure amount and multiply by six.  Using our example from earlier, $1,000 multiplied by six would give us a $6,000 rainy-day fund.

See how easy this is?  This number provides you six months of leeway if you were to ever lose your main source of income (i.e. your job).  This gives you plenty of time to reestablish that income stream or find a new job.

Pillar #3: Long-term money “LTM”

We’ve accounted for your active expenses and potential, unexpected expenses.  Now, it’s time to turn our attention to the future.

Your LTM is for your future goals, such as a house, graduate school, kids, etc.  The sooner you prepare for those occurrences, the sooner you can take advantage of compound interest.

After satisfying your STM and EM reserves, you should contribute at least 20% of your monthly income to your LTM goals.  If you’re making $3,000 a month, net of taxes, you’ll set aside $600.  Want to reach your goals faster?  Up that percentage.

And there’s your financial foundation blueprint!

Tie it all together

Construct these pillars by filling your reserves one-by-one, in the order listed.  In other words, start off by focusing on your STM reserve.  Once you’ve hit a comfortable point (i.e. about three months of expenses), move on to your EM.  Lastly, after you’ve covered your short-term expenses and potential, spontaneous expenditures, you’ll start investing in your future.

A solid, formidable financial foundation is integral to financial success.  These three pillars will provide clarity to your financial horizon and ease your financial stress.  I know it’s easier said than done, especially if you’re living paycheck-to-paycheck.  If that’s the case and you’re barely breaking even, create a budget and cut back on discretionary, non-essential expenses.  Or, commit some of your free-time to building a secondary source of income.  That way you’ll be on your way to sitting pretty at the top of your skyscraper!

Poor Credit Score: How are you Really Affected?

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This post in Collaboration with Debbie Fletcher

‘I’m not a number, I’m a free man’ so goes the classic line of the iconic 1960s BBC television series The Prisoner. Yet, in many respects that’s not true. These days you are defined – at least financially – by a number and it’s your credit score (especially if it’s a poor credit score).

This figure – barely understood by most people outside of the world of finance – can have a massive impact on your life, maybe even without you knowing what it is.

It’s important not to dismiss this as just another bit of jargon (there’s plenty of it in the world of finance after all). If you need convincing, they why not consider the issues that you might face as a result of a poor credit score?

Access to money

The most obvious issue facing you if you have a poor credit score comes with your ability to be able to afford big ticket purchases. Whether it’s a house, a car, a holiday or an emergency repair – life has a bit of throwing up key purchases that cannot be paid for upfront.

We are now a nation of borrowers as a result – but our ability to borrow can be severely hampered by a bad credit score.

The ‘score’ itself refers to a calculation given by a credit scoring agency (there are three in the UK and three in the US). It’s effectively a measure of your borrowing ability and you’ll be marked down for missed payments or debts that you have been unable to pay off.

The number will determine whether a lender will give you money in the first place. They want assurance that you are likely to pay them back and this is the way in which they’ll get their assurance. It might also dictate how much you can borrow and the interest rate you will be charged.

So, put simply, a bad credit rating will mean that you can get less money, will be charged more for the privilege of borrowing that money or even that you are just turned down in the first place. That means that house, car, holiday or home repair could be an awful lot more of a problem for you.

Jobs

It isn’t all about the money that you borrow, however. Your score could also impact upon your ability to earn too. Employers are able to run a credit check on the people who apply to them for a job. This check is about ensuring the candidate has a sound record and can be trusted – but you could feel like this is a crude way to do this, as you might not have chance to offer any explanation by way of context.

Does one missed loan payment five years ago or a dispute with an old mobile phone contract deserve to define you in the eyes of employers? Whether you think this is fair or not, it might well be the case.

Emotional

Then, of course, there’s the emotional aspect to all of this. A bad credit score might hang over you. There are steps you can take to improve your credit rating, but this might well take time and mean that big life choices have to be put on hold for a while. Do you really want to be forced to delay moving into your first home with a partner for a few years while you sort out your credit rating?

During those years you might feel under a great deal of stress and strain and some people might well feel embarrassed about what they consider to be a ‘black mark’ against them. We might be a nation of borrowers, but we’re not a nation that is terribly good at talking about borrowing and money. Indeed, our personal finances are still seen as something of a taboo by many people and that can cause people to bottle up their concerns or bury their head in the sand when they encounter trouble.

A poor credit score can, therefore, stop you buying the things you need, harm your chances of getting a good job and impact upon your mental health. When you put it like that, the importance of a good credit score becomes pretty clear.