How to Adjust Your Budget After Losing Your Job

Sometimes, through no fault of your own, your income takes a hit. Maybe you've been laid off your job and are living on unemployment checks until you find a new one. Or maybe your hours were just cut, whether you lost a part-time job you were relying on for supplemental income, or you lost a freelance client or gig, or your employer no longer had enough work for you.

Whatever the reason, when your income takes a hit, it can be challenging to plan your household budget to adjust to this new (but temporary) reality.

Here are five steps to help you make the most of the money you are still bringing home, and reduce your chances of ending up in debt when your income is down.

Take stock of your real loss of income

Before you revamp your budget, take stock of what your real loss of income is. Often, it's not as bad as you may have feared. Your decrease in earnings is not the same as your decrease in take-home pay, because you're no longer paying taxes on the money you're not earning.

And while you'll need to set aside money to pay income tax on unemployment income (taxes aren't automatically withheld like with a paycheck), you save the 7.65% in payroll taxes for social security and Medicare that were withheld when you were paid by an employer.

If you're self-employed (paid on a 1099), your reduced income will lower your quarterly estimated tax payment. Talk with your tax preparer to determine just how much. Understanding the true difference in your ultimate take-home pay will help you establish just how much you need to trim from your monthly budget to make the numbers work.

Review your budget

Before you can adjust your current budget, you need to understand how your current household income is being spent. As you review your current family budget, you'll find there's a few types of spending:

• Monthly fixed expenses.

• Discretionary spending.

• Savings (retirement, long-term goals, emergency fund).

Cut discretionary spending

Examine  your discretionary spending to determine where you might be able to cut expenses temporarily. Some common places you can cut include:

• Takeout and meals out.

• Travel.

• New clothes and home furnishings.

• Entertainment.If you have multiple streaming services, can you cut back to one (or two)? If you're a movie buff, can you get DVDs from the public library? If you're a big spender on books (electronic or otherwise), can you take more advantage of your public library?

• Cell phone. If you're not on a fixed contract, can you reduce the amount of data you pay for each month, especially if you have home internet? Can you get a better deal through a third-party reseller1 (such as Consumer Cellular or boomMobile!) that offers access to a particular network (say, AT&T or Verizon)?

• Gym membership. If you're not locked into a contract, can you cut this out for now and workout at home?