7 Financial Lessons from Unemployment You Need to Know

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?