Whether you’re ready to take your first step on the career ladder or have taken an enforced or voluntary career break, it pays to be careful when it comes to managing your money. At this time, you’re likely to have very little income coming in and you never know when your job search will end.
With that in mind, we’ve put together a few tips to help you manage your finances at what can be a difficult time.
- Differentiate between essential and discretionary expenses
When you have very little money coming, you must understand the difference between the expenses that must be paid and the costs you can cut back on. Essential expenses are items such as groceries, rent or mortgage payments and utilities, over which you have limited control. These payments must be made or the consequences will far outweigh the savings you make.
Discretionary expenses include takeaways, eating out, entertainment, holidays and new clothes. If your finances are tight, these are the costs you should re-evaluate and dial back if necessary. Creating a monthly budget could help you identify and reduce these costs.
- Address any high-interest debt
If you have some money at your disposal, you’d typically be better served by paying off any high-interest debt you have rather than trying to build a nest egg. Creating an emergency fund is very important, but it makes better financial sense to focus on repaying high-interest debts first, which will be costing you money. Debts that are designed for short-term use tend to have the highest rate of interest. That includes credit cards, overdrafts and short-term loans i.e. the credit you get online from lenders like Wonga.
There are various approaches you can take when repaying your debts:
- Debt avalanche – Make the minimum payment on all of your debts except the one with the highest rate of interest. Use the money you save on the other debt repayments to pay this one off as quickly as you can. Then target the debt with the next highest rate of interest.
- Debt snowball – Make the minimum payments on all of your credit accounts except the one with the smallest balance. Pay off as much as you can of this debt, then when it’s repaid in full, target the next debt with the lowest balance.
- Debt snowflake – Make as many small debt repayments as you can every month to chip away at those balances. This approach works well if you have a small number of debts that have a relatively high balance.
- Thoroughly research major purchases
When every dollar matters, you should make sure you get the best possible value when you do have to part with your cash. Whether you need to buy a new refrigerator or have your car repaired, take the time to read the buyer’s guides and reviews online. When it comes to household appliances, don’t assume that cheaper equates to better value. Instead, look for the length of warranties and prioritise quality over cost if it makes sense to do so. If you need a handyman or a mechanic for your car, find vetted contractors that have excellent reviews online and always ask for a quote upfront.
Do you have any money management tips for job seekers that you can share with our readers? If you do, then please leave them in the comments below.