6 Ways to Manage your Finances if you are Unemployed

According to the latest data by the World Bank, the unemployment rate has come to a whooping 6.5% globally. Does it make you wonder how you could manage your finances if you were unemployed?

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Clearly, the  rate  is quite high and the global pandemic has just worsened the employment system. 

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The employment system of the entire world was thrown into shackles as soon as the pandemic hit. Factories were shut down and the workers became jobless.

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Despite the several steps taken by the government to raise demand  and elevate the production process, workers are still jobless.

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Even when there has been an upward trend in government spendings, employment rates cease to rise.

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Recently, in India we saw some huge layoffs being carried out by companies. One of the highest proportions was around 30% of full-time employees being laid off!

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But is the pandemic alone to be blamed? There are multiple factors that contribute to the downfall trajectory of why a percentage of people are jobless in these times of desperation.

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On top of this havoc, there are other unforeseen factors that are making  things even worse.

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From the ongoing Russia-Ukraine crisis to the financial emergency in Sri Lanka, the global economy has been severely harmed and recovery is expected to take a long time to set in.

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Let’s  understand it through an example- due to the ongoing war, oil prices have risen globally. When prices rise, we call it inflation.

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‍The direct impact can be seen by  watching the consumers suffer. However, this is even worse for  the  companies that use this oil as a raw material.

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Since the price of raw materials have risen, so does their cost of production. How will they compensate for this expenditure?

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By cutting off expenditure somewhere else. The easiest way is to reduce wages or simply lay off workers. Now that’s where the problem lies- unemployment surges! 

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However, unemployment is not solely due to these reasons, there is always a natural unemployment rate in existence.

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In simple terms, there is never full  employment in an actual full sense. Economists believe that there will always be a natural  unemployment rate that is seasonal or disguised in nature.

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The problem arises when current rates are high at an alarming rate as compared to the usual rates.

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Reasons that contribute to unemployment and a decapitating fall in minimum wages:

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• At the time of merger, the merged firms won’t need an excessive workforce so they might find it easy to lay off some workers and  cut down on their expenditure on salaries.  Companies often just choose the creamy layer and fire the rest of the employees. Plus, since a merger enhances the productivity of workers as it becomes easier for them to learn from their colleagues, excess labour isn’t required anymore. The other half of havoc is created by the technological ease that comes into play due to a merger. 

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• There might be technical innovation that reduces the need of labour in the production process. For example, a new machine that is able to sort out the damaged packets, pack the fresh ones and even store them automatically will reduce the need to hire workers for these intermediate steps. We are fast pacing towards a future where robotic intelligence will replace human labour. It might be terrifying, but it is the truth. An innovative robot can work as much as 3 human adults- a problem for workers. 

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• There might be a change in the requirements of the firm and so the current workers don’t fit within their scope of need. For example, if the company decides to go for  a total switch to digital mode, some workers who are not good at technical things might lose their job. Here, the younger generation have an edge over the older since they are more technical savvy and hence can adapt to the system innovations with ease. But for the people who are used to working in a traditional way, they will definitely lose jobs. 

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• A fall in inflation rates also leads to a subsequent rise in unemployment rates as per  historical trends and empirical evidence. As inflation rates fall, there is a subsequent fall in wage rates. This wage rate  fall will make it easier for companies to replace workers that demand a high wage with those who work for a lesser wage rate. So, there is more unemployment in the economy. In this case, both workers are worse off. One type of workers are getting less than they deserve, others have lost the fortune of even getting a small sum. But you can’t control inflation. Here, the government is the authority that can make policies to save workers. 

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• There might be disguised unemployment due to lack of opportunities, awareness and low wages. The best example of  this is the agriculture sector. Family of  5 will be working on a farm together that, in reality, might only need 3 of them. In this case, the other 2 family members are disguised as unemployed. Basically, this illusion of being employed when you are actually not is dangerous for your whole family’s financial health. All your skills and effort go in vain when you could’ve instead earned from it.  

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• A lack of skill of a certain kind might also cause a loss of job or decrease employment opportunities even for an educated worker. 

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However, whether these situations are harmful to the economy as a whole might be a tougher nut to crack, instead it is easy to state that unemployment definitely proves to be a financial problem for any individual.

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Financial pitfalls like these are hard to foresee and therefore, an emergency fund  is necessary to protect you against any such situation.

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There are several ways in which you can personalise your emergency fund as per your earning and spending schedule.

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The crux is that it takes a precise amount of research and careful investment plans. You can’t just keep accumulating money in your account- inflation will take it all down- you need to make investments.

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Be it a mutual fund or a fund in a post office, whatever can give you good interest, should be the one you spend your money on. 

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Since not everyone invests in an emergency fund or might have not got enough time or haven’t accumulated enough money to do so, here are some ways you can safeguard your financial health against all odds pertaining to unemployment:

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1. Outline your budget: Know where your money goes

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The first thing that you must do is to try to keep a track of your monthly expenses. Always prefer taking it to the virtual platform since the corrections are easier to make and the tables turn out less hectic.

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From there, you can start by cutting off expenditures through examining where you are spending the most. Say, for instance, that most of your money goes into groceries. In this case, you can compare grocery prices from online and offline sources and pick the cheaper option. 

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Check out: Budget Exhausted? Know the reason behind its failure? 

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Next, cut your bills. If you live alone and with excessively high rent rates, it might be the time to look for an affordable residence for at least this time period.

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Other expenses like electricity bills can be cut short by using it very sustainably. Also it saves energy, earth, as well as your money, right?

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You should try to curb down expenses by at least 20 to 30%. If this goal is accomplished, you can move on to the next step.

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You can use online trackers and savers for these purposes. Apps like Jar help you save your spare change and convert them into digital gold.

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Try to look for such alternatives and plan out a proper monthly expenditure plan. 

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2. Fight the debt! Don’t let the debt take your finances down

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After curbing down your expenses to some extent, the next step that you have to deal with are your debts, if you have any then try to avoid one.

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In case you are under a student debt, you can request your bank to suspend payments for a fixed amount of time.

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Seek some leniency from your landowner but make sure you don’t spoil your credit history. In any case, you must not take any loans in this situation as you might get trapped in a debt trap.

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Credit card loans are the worst thing to do in your unemployed phase, therefore try to refrain from them as much as possible. 

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Must read: Debt Trap more like Financial Death Trap? How to escape it?

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3. A call for help! Seek help from your financial resources

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If you have an emergency fund already set in place, it is the time to use it. With a proper strategy in mind, you can sustain through this phase with your emergency funds.

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Make sure that you utilise the fund and not be reckless about its availability . You must try to plan out at least a 6 month financial survival plan in this phase while still trying to look for alternative income sources. 

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4. Buckle up! Never slack your retirement plans

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In your unemployed phase, you must utilise your emergency fund but at the same time don’t ruin your retirement fund.

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‍It is a long term plan, so don’t try to cut short its wings. Remember, it is earning you some profits through market speculation and using them in this situation is clearly a stupid thing to do.

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Even when you are not contributing to them regularly, they are still an important component of your financial portfolio.

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Instead of ruining them, you can try to  add something to them.

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From your slacked budget plans, try to invest the excess in your retirement funds or just keep them untouched.  

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5. Seek an authentic government policy

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Next resource you can seek help from are government policies that specifically target the unemployed section of the society.

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‍Do some research and apply for official help as soon as possible. You may not get a very large sum as an allowance, rather your other expenses like gas, groceries, etc., might get subsidised and your expenses will definitely reduce if not anything else. 

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6. Learn from the gig economy

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With everything taking digital form, the gig economy is on its boom. People are earning from their skills and interests and you can also try doing the same.

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There are several freelance opportunities that can help you find an alternative source of income through your hobbies and expertise.

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Make sure to take advantage of the power of the internet. This process might be slower or very fast, depending on your consistency. 

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Managing your expenses while you are unemployed can be an extremely difficult task. But, there is always a way to find a solution somewhere.

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Instead of losing hope, research about what you can do to safeguard your finances.

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These are some suggestions and tips that you can follow to secure your financial health if you are unemployed.