Getting by without a job, part 3--cut spending

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[Editor's note:  If you recently lost your job, take a look at Wise Bread's collection of tips and resources for the recently laid off.]

With the economy tanking, more and more people will be not just losing their job, but will be finding themselves without one for an extended period. When that happens it's not good enough to just cut back a little and use debt to make ends meet until the economy recovers. Getting by without a job is possible, even for an extended period--but it requires taking drastic measures to cut spending, and it requires taking them early, while you've still got some cash.

This is part three of a four-part series. Part 1 was on the first things to do if you lose your job and part 2 was on boosting your income. Part 4 is on getting what you need without money.

Despite the fact that it's kind of hiding here as number 3 in a four-part series, this is really the kernel of how to get by without a job--you need to get your expenses low enough that you can cover them with just the money you can earn though casual labor plus whatever you can realize from whatever assets you've managed to hang on to (interest, dividends, rents, etc.).

Last year, when I suggested that it was possible to get by on a minimum wage job, I drew a considerable bit of mockery, so I'm expecting much the same when I suggest ways to get by without a job at all. Let me restate what I said then: We have a name for the standard of living that results from living on a minimum wage income. We call it "Living in poverty." Getting by with no job at all does not result in a higher standard of living--it is though, to my mind, an improvement. Minimum wage work is often difficult or dull (or both), and is too often dangerous as well. Eking out a meager existence on what you can earn through casual labor has the huge advantage of allowing you much greater choice in just what that labor is.

The biggest problem when it comes to surviving without a regular job is that most households have a terribly inflexible cost structure: Their bare minimum fixed expenses exceed any income that could be earned with casual labor. There is no getting around this except to completely change the cost structure of the household.

Most people resist this step until they've done permanent damage to their finances--run up debts that they'll never be able to pay back, had the heat and power turned off, or even been evicted.

It's a hard step, but you're way ahead of the game if you do this early rather than late.

Cutting fixed expenses

Most of the fixed costs for a household are tied up with housing. There's the rent or mortgage, there's the utilities, and there's the insurance. If you own a house free and clear with no mortgage (or if the payments are very low), then it may make sense to stay there (even though just utilities and insurance can add up to as much as the cost of a cheap apartment). If you're renting or have a mortgage, you need to look seriously at moving to the lowest-cost housing you can find--and start looking the instant you begin to suspect that this period of unemployment won't be the sort of brief sojourn that people can generally expect during good economic times.

The most obvious thing to do is to move in with relatives. Many people view this as the sort of ignominious defeat that's little better than ending up living in their car, but it's a step that can turn a catastrophe into just a bump in the road--if you do it early enough. If you wait until your savings are exhausted and you've run up a bunch of credit card debt, you can put yourself into a hole that you may not be able to get out of short of bankruptcy. One thing to keep in mind is that it is temporary. You're not moving in with relatives forever, just until the economy improves enough that you can find steady work again.

If you don't have relatives (or they won't take you in), other sorts of house-sharing arrangements are possible, such as splitting costs with a roommate or renting a room in someone else's house. Last year Myscha suggested twelve ways to house yourself for free.

The other really large expense for a lot of people is transportation. Owning a car costs thousands of dollars a year--and only about half the expense is the purchase price and financing; the rest is just fuel, maintenance, taxes, and so on.

If your car is paid off, it may make sense to keep it; it would put some opportunities to earn money within reach that wouldn't be if you had to rely on public transport or a bicycle or walking. But owing money on a car is just about untenable for someone without a job.  (Owing money on anything is just about untenable for someone without a job; a car is simply one thing that many people buy on credit.)

Those are the big ones. If you can reduce your cost of housing enough (and you don't have other debt that you have to make payments on), you can cover your other living expenses at some level, even with a very low income. In fact, if you live in a rich country and can find a place to live for free, you can very possibly reduce your other expenses almost to zero as well, at least temporarily.

Cutting variable expenses

My recent emergency belt-tightening post covered cutting variable expenses on an emergency basis, and that's a good place to start. If you're at the point of getting by without a job for an extended period, though, you actually need to ease up from those drastic measures. In an emergency you sometimes have to defer necessary expenses simply because you don't have the cash. Doing that, though, often costs more in the long run. If this isn't an emergency, but rather is the way you're going to be living for a while, you need to start taking the long view.

Figure out what you absolutely have to have. Then figure out the absolute cheapest way to get it. Things like buying in bulk and stocking up during sales can yield large returns. Wise Bread is full of tactical ideas for satisfying your needs as cheaply as possible.

Even if you don't have a regular job, if you have some income and really cheap housing, you can fund all your needs, and still have a little left over to satisfy a few of your wants. The key is to draw the line before your spending exceeds your income. That may mean that you don't satisfy very many wants at all, but "more than none" is really pretty good, in the grand scheme of things.

Don't screw up

When you're getting by without a job, you have much less margin for error.

For one thing, especially in the year after you lose a job, you have to be careful about taxes. If you don't have a regular job, you probably don't have any money being withheld. Looking on the bright side, if you're not making much money, you probably don't owe a lot. However, if you get any severance pay (especially if you get it late in the year), it can make the year in which you lose your job the highest-paid year of your life. Be sure that enough gets set aside to cover the taxes. If you dip into a tax-advantaged plan like a 401(k) or an IRA, be sure you know what the tax consequences are. If getting out of a house you can't afford involves giving it back to the bank, be aware that the IRS can treat any loan balance that the bank forgives as income.

For another thing, you probably have a lot less stuff. Some things you sold to raise cash. Other things you gave away or donated or simply tossed when you moved into much smaller housing. Little things like breaking a dish, that used to mean that you had an eleven place setting instead of twelve, now mean that someone has to eat out of a bowl until you can scrounge up a free replacement.

A minor car accident that used to mean dining out less for a few weeks until you'd covered the deductible, now means that you've permanently lost the interest that the deductible money would have been earning--if you haven't lost the use of the car altogether.

In fact, though, being careful not to break stuff and using things gently so that they last is just good sense--a wise habit that will be worth preserving even when times get better.

Enjoy it

Is there any overlap between living in poverty and living large? Personally, I think there is. Being forced by hard economic times to eke out a meager existence--that's not much like living large. But choosing to eke out a meager existence, because it's the best way to live according to your own values?  That's living about as large as you possibly can.

Most people never think about what they most want to do with their lives. They find something that they're okay at that pays enough money to support them, and then let a rising income drive a rising standard of living with no real thought even to the possibility that there might be alternatives. In hard times, though, the alternatives may be all you've got. Fortunately, there's a good chance that one of those alternatives is actually a better choice than whatever you ended up doing.

You can get by without a job if you cut your spending enough. And if you do that, you open up a universe of possibilities that most people don't even know is out there. Take advantage of the opportunity to explore those previously uncontemplated choices. If you don't like what you find, you can go back to working a regular job just as soon as you find one. Maybe, though, you'll find the alternatives as alluring as I do.

Especially in rich countries, it's possible to get a lot of what you need without money, which is the final part of this series.