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People think in unemployment they will tighten the belt and be able to get by on less than they had before. Of course, when your income stream has ended, it's important to cut back costs where you can. But as I've learned, there are several areas where being unemployed may cost more than you think:
1. Health insurance:
Your employer may have paid for all or part of your medical insurance premiums. Once you don't have a job anymore, you are responsible for purchasing your own insurance, either through COBRA (102% of your premiums under your employer's plan) or shop for insurance on the individual insurance market. The average cost of COBRA for a family of four is $12,000. Be sure to incorporate this cost into your unemployment planning.
Even if you are young and healthy and can find cheap individual insurance, the coverage is often times not as good as your employer's group plan. This means that you must be prepared to pay more out of pocket fees for doctor's visits, dental cleaning, routine tests, prescriptions, etc.
2. Travel:
This includes traveling for job-hunting purposes as well as traveling to visit friends or family. During a down market, it's especially important to be geographically flexible when searching for a new job. However, as companies cut budgets they are not likely to be able to pay for interview-related travel expenses. If you go on informational / networking trips, then you are certainly 100% responsible for your travel costs. Take these costs into account when you're saving for unemployment!
Additionally, many people want to take advantage of their time off by spending more time seeing friends or family. You might decide that you can't miss your best friend's wedding that you planned to go before your unemployment (Rachel of Recently Laid Off talks about the expenses of traveling to weddings while laid off). Or, unexpected need for travel may arise - the need to visit an ill parent who lives on the opposite coast, for example, or to attend a funeral for a favorite aunt. Again, traveling takes money.
3. Hobbies / Friends:
You have more time now, so don't be surprised if you pick up new hobbies. Friends will still ask you to go to dinners and coffees and movies - occasionally they may be gracious and offer to pick up your tab, but it's never a good idea to expect such gestures of generosity. If you are single and dating, you may also need to consider the costs of dating in your unemployment budget.
Unless you want to completely close yourself off to the possibility of picking up hobbies or socializing with friends outside of house parties (even then you need to bring something - a drink or food), you will need money for this. During unemployment, support of friends and an outside social circle is really important. don't neglect to save money for those things.
The lesson is this: a bare-bones budget for unemployment is often not enough. You will have likely overlooked something in making such a budget. I certainly have. The solution? Save more while you still have a steady source of income. 10%+ more than you think you will need. Whatever $20 or $50 or $100 might mean to you right now, that same amount will mean so much more if you become unemployed.
