7 Financial Lessons from Unemployment You Need to Know

7 Apr

One of the silver linings of being unemployed is that you do really learn a lot about yourself, how resilient and strong you are, and what it really takes to survive. As I have mentioned previously, I am a personal finance nerd, and I love reading about all things personal finance. I consider myself fairly savvy in this area, but what I didn’t know is that the best financial lessons come from being unemployed, and facing true financial pressures. Below are some of the best financial lessons that I have learned from this time of transition.

1) You Can Live on a Lot Less

When you really get down to the nitty gritty or what you need to survive, it is a lot less than you think. We don’t realize how much “fluff” there is in our spending until we are forced to face a very limited budget. How often do you pick up something at Target that you don’t really need? Do you have any clothes hanging in your closet with the tags still on? How many times a week do you stop at a local coffee shop for your favorite beverage? Do you get take-out often because you are too tired, too lazy, or too busy to cook? Do you buy things at the grocery store that you don’t end up eating?

Being unemployed forces you to make cuts in your spending, and you realize how much money you spend on things that aren’t all that important. The good news is that this lesson will come in handy if you have to take a pay cut to get back into the workforce.

2) Don’t Shop Mindlessly

The next time you go to Target, your favorite big box store, or the grocery store, sit back and observe people shopping for a moment. You might be suprised to see how many people appear to be shopping mindlessly, grabbing things and putting them into their cart without any real purpose.  Many people shop without a list, and you wonder how many things will end up in their cart that they don’t actually need.

Take a list, shop mindfully, and minimize you trips to big box stores.

3) Find What you Value

Years ago I read the book Your Money or Your Life. The book challenges  you to look at how you trade your “life energy” for money. As you track your spending, every penny of it, you are directed to assign value in terms of how the spending enriches you life.  In tracking your spending, the authors also ask you to think about the hidden costs associated with your job (commuting, clothes for work, lunches out, snacks etc.). It is a must-read personal finance book and has been life-changing for a lot of people.

I didn’t have the patience to follow-through on all of the steps in the book, but I am getting the shortcut now by being unemployed. When you are unemployed, and on a limited budget, you very quickly learn what you value. I really thought that I would miss shopping, going out to fancy dinners, my latte habit,  and going to expensive yoga classes. But, what I have found is that I don’t really miss those things.

What I do miss is traveling. When I am earning a good income again, it will be easy to prioritize my spending on the things that are most important to me, and cut out the other spending. I don’t need a big house, designer handbags, or expensive shoes, but I do value seeing the world.

4) Save with a Purpose

When I was working, I had a good income and saved a good percentage of my income. But, I wasn’t really saving with a specific purpose in mind outside of my retirment savings. I was saving just for the sake of saving. For me, it is easier to save even more when I have a purpose tied to those dollars.

When I was saving for a down payment for my house years ago, it was easy for me to turn down lunches out with co-workers, or not buy new clothes because I was saving with a purpose and nothing was going to get in the way of my goal. But, after I bought my house, and paid-off my student loans, I didn’t have another specific goal in mind. I continued to save, but I know that if I would have had a purpose and goal in mind, my savings rate would have been higher.

Set a purpose and a goal for your savings, and it will be easier to say no to frivolous spending.

5) You Need a Bigger Emergency Fund

It is obvious to me now that in the economy, the old rule of thumb of a 6-month emergency just isn’t good enough. With the number of people who are long-term unemployed, and the amount of time that it takes to get through the hiring process, you need to have at least a year’s expenses in an emergency fund. I can already hear people making all kind of excuses as to how this isn’t possible becuase they don’t make enough money, or they could never possibly save that much. If you are one of the people making excuses, you need to look at every penny that you are spending, and really take a hard look at what spending is necessary.

6) Don’t be Entitled

Sometimes I like to watch the Suze Orman show (I told you I was a nerd). Recently there was a guest on the show who was $192,000 in student loan debt and $8,000 in credit card debt. The guest had attended a private arts school and majored in graphic design. She had not been able to land a career job, and was working at a natural food store where I can’t imagine that she was making much more than $10/hr. The fascinating the was to listen to her try to defend spending $100/month on a cell phone. Her rationale was that she didn’t have cable and internet so she “needed” the expensive cell phone plan. Really? You are $200,000 in debt, and your parents are paying your bills, and you are entitled to an expensive cell phone?

Don’t be in denial about your financial situation and think you are entitled to anything. You aren’t. If you have student loan debt or credit card debt. Treat your debt like the emergency that it is! You aren’t entitled to have things that you can’t afford. You aren’t entitled to cable, a cell phone, a 50 inch TV, or and ipad.

7) Create a Side-Hustle

For years I have thought about starting a side business, but I when I was working full-time I never got around to doing it, and I didn’t need the extra income. But, now more than ever I realize the importance of having more than one income stream. If I had started that side-hustle, this time of  unemployment would have been a much easier transition, at least financially speaking.

There are all different kinds of side-hustles that you can do such as freelance writing, dog-walking, creating and selling jewelery, website design, tax preparation, or coaching. Take something that you love to do and find a way to create an income stream for yourself.

What financial lessons have you learned from being unemployed or unemployed? What will you do differently when you are back to full-time income?

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8 Responses to “7 Financial Lessons from Unemployment You Need to Know”

  1. Michael Terry April 7, 2013 at 3:12 pm #

    I’ve been enjoying your posts and can personally relate to your experiences of being unemployed. I have found full time employment working for a large retailer, but pays about a quarter of what I used to make. My wife and I are financial nerds as well, we lived well within our means, have no debt, and have some savings. I support all your suggestions but would like to emphasize point seven: “Create a Side Hustle”. Like you, I thought about it but never took any concrete steps to follow through. It seems that the complexity of the marketplace almost demands we have several “gigs” lined up in case our main one falls through. I hope to be back working in my chosen field soon, but creating another income stream is a priority going forward. Thank you.

  2. Dawn April 7, 2013 at 5:04 pm #

    Wow, you really made me think with this one. I can and should start saving with a purpose in mind. Like you, vacations are high on my priority list. I’m going to start saving for the next one.

    • Lisa M. April 8, 2013 at 8:33 am #

      Thanks Dawn! Yes, start saving for your next fabulous trip!

  3. Razwana April 7, 2013 at 11:11 pm #

    Hi Lisa – this is really good advice. It’s amazing what can be learned about personal finance when you don’t have a lot of money to play with!

    My unemployment situation was extreme, in that I had zero savings and zero income. I ended up moving out of my apartment and into a house-share, which reduced my spending on rent by 2/3’s.

    Making those brave decisions and deciding to be uncomfortable for a while really makes all the difference!

    And now, I save as much as I can and am still building my emergency fund – you just *never* know what is round the corner, and this time I refuse to add financial worry to my list !

    • Lisa M. April 8, 2013 at 8:43 am #

      Razwana,

      Thanks for your comment. I was fortunate in that I had savings, though I didn’t anticipate that it would take this long to find a job. Building my savings back up will be priority number one when I am back to work. Having a sizeable savings gives us a lot more freedom to make different choices. I would not have been able to leave my job without having the savings that I did have.

  4. Vishnu April 7, 2013 at 11:18 pm #

    All good lessons for unemployment or even while employed, Lisa. I think realizing you can live on a lot less is a real wake up call to most people. One day, you might think you couldn’t live without x,y,z but really much in our lives is luxury and maybe even excess. We can definitely live without those things. As far as shoppingn mindlessly, I think I’m the opposite where I question 20 times if I actually need what I’m going to buy. For example, have been going back and forth on a blender for two months. haha the only thing I’d use it for is fruit smoothies but I can buy ready-made fruit smoothies from the grocery store. It’s a tough decision but one I am giving much thought to. Yes, we all need to be a little bit more mindful when shopping, even thought there’s a large industry (marketing & marketing campaigns) trying to get us to buy stuff all the time.

    • Lisa M. April 8, 2013 at 8:37 am #

      Vishnu, thanks for your comment! Yes, there are so many luxuries in our lives that we can live without. I think the key is really identifying which luxuries add value to our lives, and which don’t. One luxury I invested in is a Breville juicer and I Iove it!

  5. What I Like Is Sounds April 10, 2013 at 7:16 pm #

    I saw that same episode of Suze Orman, and I was thinking the same thing. I have been underemployed for many years, and I have learned to shop for certain things at the dollar store (shampoo and conditioner, plastic sandwich and freezer bags, pasta, etc.) to save a buck, plus I don’t go out to eat or to the movies. I too have a less-than-practical degree (MA in history), but I do have 20 years of work experience that should help me find a better job. Things are still rough out there for a lot of people, so cutting back or eliminating things you don’t absolutely need is a way of life for some of us. I wrote about my situation in a recent blog, and I think some others can relate: http://danapronounceddonna.wordpress.com/2013/04/10/a-livable-wage-and-time-to-pursue-my-dreams-who-needs-that/

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