Cash Management while Job Hunting

Given the jobless rate I figure it's time for write about cash flow management while job hunting.  Hopefully this approach will reduce the stress of using your emergency savings and inform you on how long the money will last.  If it's a long time... then you'll sleep better.  If it isn't... than this exercise might add to your stress (sorry) but give you a heads up.  Either way you'll appreciate the necessity of re-building emergency savings when you are back being fully employed.

There are many cash flow items that impacted your salary before you got paid.  That all changes when you're unemployed.  If you had been making $50,000 in salary you weren't living on $50,000 due to taxes, social security and 401(k) contributions.  Your net pay was likely between 30-45% less.

So, your prior Net Pay amount is the gap 

you need to narrow and fund while unemployed.

How to determine the Cash Gap
(How much of your emergency savings will be needed each month?)

Do the following calculation:
Net Pay from your former job (per month)
- Less Reduced Expenses* (see list below)
- Less Unemployment Compensation
+ Increased Health Insurance
= Cash Gap per month

*Reducible monthly expenses:  house cleaners, child care, commuting costs, dry cleaning, take-out, cable services and phone minutes, lawn care, etc.)

How long will my $ last?

1. First, deposit any severance pay into your SAVINGS account.  This is part of your emergency savings.
   
   
2. Divide the your savings account balance by the 'Cash Gap' amount calculated above.
   This number is the estimated # of months worth of savings you have. 
   If it feels insufficient, than more drastic cost-cutting measures and/or supplemental interim income might be needed.
   
   
3. Finally, set-up an automatic transfer bi-monthly from saving to checking for half the cash gap amount.
   This transfer becomes your self-paycheck.  It reduces the stress of having to keep transferring $ to pay bills. If you are sticking to your reduced budget, than you shouldn't have to touch savings unless an unexpected, non-routine expense comes along.
   

Remember, this is about managing cash flow through a short period of your working life.  You'll have time to resume retirement/college savings, vacations, and home improvements soon.

Good luck with the job search,
Practical Jenn

P.S. Let me know if you see any interesting jobs for me!!!