Financial security when unemployed: How to budget during a job loss

Losing your job can be a significant emotional and financial drain. If you know your company is undergoing layoffs or you’re worried about a possible upcoming recession, that strain can begin even before you receive a pink slip.

One in three (33 percent) U.S. adults who are employed are worried about their job security, according to an April 2023 Bankrate survey. While that is fewer people than in August 2022, when 39 percent of employed adults were worried about their job security, it still means many Americans are concerned about losing their jobs.

No one wants to lose their job and start a grueling job hunt, but helpfully, state and federal programs can provide aid through unemployment compensation and insurance benefits. Unemployment benefits can provide a steady amount of cash to help pay expenses until you get a new job, but they likely won’t completely replace full-time income. Creating a realistic budget, even when you’re still employed, can allow for better peace of mind while you job hunt.

Here’s what you need to know about unemployment and benefits, and how you can be prepared for a possible job loss.

Key unemployment statistics

Americans’ average unemployment is 19.5 weeks

You likely won’t know ahead of time how long you’ll be unemployed for, but having savings in the bank can allow you to pay at least some bills while you’re between jobs. Many Americans, however, don’t currently have that nest egg: Only less than half (43 percent) of U.S. adults would pay a $1,000 surprise expense from their savings, according to a January 2023 Bankrate survey.

The average unemployed person spends 20.9 weeks unemployed, seasonally adjusted, according to April 2023 data from the Bureau of Labor Statistics (BLS). However, more than one in three (34.1 percent) of those unemployed as of April 2023 have been unemployed for between five and 14 weeks — more than any other length of unemployment:

Source: BLS

In April 2023, 20.6 percent of unemployed people had been out of work for 27 weeks or more, according to the BLS. The actual number of people unemployed that long decreased year-over-year, however, from 1.47 million in April 2022 to 1.16 million in April 2023.

Unemployed Americans receive an average of $441.25 in benefits each week

After losing a job, filing for unemployment can provide a much-needed financial cushion. You can usually file for unemployment through your state unemployment insurance program if you lost your job through no fault of your own, such as via a layoff, among other requirements.

Unemployment benefits are unlikely to be an easy replacement for full-time income. Benefits can be a key part of many unemployed peoples’ budgets, but initial payments won’t begin until two to three weeks after you file your claim, and payments depend on your state.

Weekly unemployment payments tend to be higher in states with a higher average cost of living, such as Washington, Massachusetts, Hawaii or New Jersey, according to Bankrate analysis of the United States Department of Labor’s Employment & Training Administration (DOL-ETA) data.

Unemployed individuals in lower-cost Southern states, such as Tennessee, Louisiana and Mississippi, will see much smaller benefit payments. However, no matter what state you live in, unemployment benefits typically barely cover the average cost of rent alone.

Washington residents receive an average weekly benefit of $676.46, the highest in the country, according to the DOL-ETA. But that may not be enough to cover unemployed residents’ monthly expenses, or even their rent, since the average Washington resident pays $2,022 a month in rent, according to Rent.com.

Source: DOL-ETA

Mississippians receive an average weekly unemployment benefit of $221.91, according to the DOL-ETA — the lowest in the country. The average rent in Mississippi is $786, significantly lower than Washington’s, according to Rent.com, but still likely too high for most residents relying on unemployment benefits.

That is, if they receive unemployment benefits at all.

Only 26 percent of unemployed people in 2022 actually received benefits, according to the BLS. Most commonly, 55.1 percent of people did not apply because they believed they were ineligible for benefits, including those whose work was not covered by unemployment insurance, those who quit their job, those who were terminated for misconduct, those who had insufficient past work or those who had previously exhausted their benefits. Other reasons, according to the BLS, were:

• Other reasons for not applying for unemployment insurance benefits: 30.8 percent
• Attitude about, or barrier to, applying for unemployment insurance benefits: 10.2 percent
• Reason not provided: 3.9 percent

Those with attitudes about or barriers to applying said they didn’t need the money, had a negative attitude about unemployment insurance, did not know about unemployment insurance or had problems with the application process, according to the BLS.

1 in 3 employed Americans are worried about their job security

Even if workers haven’t been laid off from their jobs recently, many are still worried about job security in the future.

One in three (33 percent) employed Americans are worried about their job security, according to Bankrate, but those who are younger or have lower incomes are far more likely to be concerned.

One in four (41 percent) employed people with a household income under $50,000 are worried about job security, compared to 30 percent of those who make between $50,000 and $99,999 and 32 percent of those who make at least $100,000 are worried about job security.

Similarly, millennials (ages 27-42) are the most likely (42 percent) to be worried about job security of any generation, followed by Gen Z (ages 18-26) — 36 percent of whom are worried:

Source: Bankrate

In comparison, only 16 percent of baby boomers (ages 59-77) are worried about job security — the least of any generation.

4 financial ways to prepare in case of a job loss

Regardless of if you’re worried about the possibility of an upcoming layoff or you just want to be prepared now, saving for an emergency can allow you to better weather a job loss.

Here’s how to start saving for the future:

1. Plan how much you need in an emergency fund. An emergency fund typically covers three to six months of expenses, perfect for the average unemployment, which lasts an average of 4.8 months. That can be a lot of money, so start saving in at least small amounts now to get as close to your goal as possible. Different types of bank accounts, such as a high-yield savings account, can allow you to accrue higher interest on your emergency savings.
2. Build a budget around reduced income. You may not be able to reduce your rent or mortgage payment if you lose your job, but you can make your savings stretch a little further by planning to reduce unnecessary subscriptions, shopping budgets and other non-essentials. There’s no need to eliminate them immediately if you’re still employed, but having the list will come in handy if you do lose your main source of income.
3. Pay down debt. Debt repayment can take a serious chunk out of your monthly budget even when you’re employed. According to Bankrate, 34 percent of people are prioritizing both paying down debt and increasing emergency savings currently. If you’re one of them, allocate funds to debt repayment using strategies like the debt snowball or debt avalanche methods, which can reduce expenses if your income is reduced.
4. Know who to contact to freeze bills. Some companies, such as mortgage lenders, may allow you to freeze payments if you experience financial hardship. Research your lenders or the companies you pay bills to and see if they will allow you to freeze payments if you lose your job. Keep those contacts handy so you can contact them as soon as possible if needed.

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  Methodology

  Bankrate.com commissioned YouGov Plc to conduct the survey on job seekers. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,417 adults, among whom 1,524 were either employed or looking for work. Fieldwork was undertaken on March 8-10, 2023. The survey was carried out online and meets rigorous quality standards. It employed a nonprobability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.
  
  The First-Quarter 2022 Bankrate Economic Indicator Survey of economists was conducted March 23-30. Survey requests were emailed to economists nationwide, and responses were submitted voluntarily online. Responding were: Odeta Kushi, deputy chief economist, First American Financial Corporation; Yelena Maleyev, economist, KPMG; Scott Anderson, chief economist, Bank of the West; Nayantara Hensel, Ph.D., chief economist, Seaborne Defense; Joel L. Naroff, founder, Naroff Economics; Mike Fratantoni, chief economist, Mortgage Bankers Association; Robert Frick, corporate economist, Navy Federal Credit Union; John E. Silvia, CEO and founder, Dynamic Economic Strategy; Dante DeAntonio, director of economic research, Moody’s Analytics; Bernard Markstein, president and chief economist, Markstein Advisors; Lawrence Yun, chief economist, National Association of Realtors; Robert Brusca, chief economist, Fact and Opinion Economics; Bill Dunkelberg, chief economist, NFIB; Gregory Daco, chief economist, EY; Lindsey Piegza, Ph.D., chief economist, Stifel; Eugenio J. Alemán, Ph.D., chief economist, Raymond James Financial; and Mike Englund, chief economist, Action Economics.
  
  The study on emergency savings (that was conducted in December 2022) was conducted for Bankrate by SSRS on its Opinion Panel Omnibus platform. The SSRS Opinion Panel Omnibus is a national, twice-per-month, probability-based survey. Interviews were conducted from Dec. 16-19, 2022 among a sample of 1,028 respondents in English (1,003) and Spanish (25). The survey was conducted via web (998) and telephone (30). The margin of error for total respondents is +/-3.5 percentage points at the 95 percent confidence level. All SSRS Omnibus data are weighted to represent the target population.