How to restructure your finances as a couple if one or both of you have lost your job

“First published in 'Millennial Money Management' by Money Medics in July 2020”

In the UK and around the world we’re seeing unprecedented job losses. 

Losing your job has serious ramifications from a financial wellbeing point of view. 

In normal times, money is a major cause of arguments, breakups and divorce, so losing your job becomes immediately more stressful if you are part of a couple, as you will likely have shared financial commitments which will be impacted, causing added stress for both people. 

When you’re in a relationship you transition from ‘my job’ and ‘my money’ to ‘mine yours and ours’ - life becomes about joint wealth, and joint financial resilience. 

I’m going to go through some immediate steps for any couple experiencing unemployment currently, that will help to build their financial resilience.

This guidance, however, is something that all individuals and couples should be aware of and practicing all the time, because losing one’s job - or any other financial set back - is not exclusive to these unprecedented Covid times, it is always a risk. Even the most talented employee cannot control how their boss runs the company or fully safeguard against the security of their job.

If Covid has taught us anything, it is the need to be prepared for the unexpected:

'All couples should prepare for bumps in the road, because the reality is those bumps are the road.' 

The key to being financially resilient, contributing to wider emotional resilience, is anticipating and being prepared for the unexpected. 

• Start monitoring your spending like you do your smartphone battery

When we’re fully charged, it is fine to use all the apps, but when we’re running empty we know which ones to stop using to save power, and when to switch to power saving mode.

Some of us have a spare battery pack meaning their phone never runs out of juice.

Our finances are the same. 

It’s so important to be aware of your financial ‘juice’ and know when you’re likely to run into the red. 

• Then understand your collective wealth 

Talking about money isn’t the easiest, especially for us Brits, but having a frank and open conversation with your partner about where you’re currently at is an important step in understanding what to do next.

Your wealth is defined as all your assets such as your home, car, furniture etc., plus pension and investments, minus debts like your mortgage and any credit cards or store cards.

• Get comfortable with radical budgeting when you need to

When finances are going to get tight, it’s time to go into ‘money saving mode’ and be as cut-throat about spending as we are about shutting down our apps. 

Look at bank statements and credit cards, track what you’re spending and note down your direct debits. 

Go through them and think ‘which of these do we really need to pay’ - for instance your mortgage, rent, electricity bills and wifi. 

Then look at the non-essentials and ask yourself ‘do we need all these subscriptions and memberships’.

Between the essentials and the obvious, there will be some stuff in the middle which will be a lot harder to cut - but be steadfast.

I know people who have cut their outgoings by 20-30% just by doing this.

Of course, the more extreme the circumstances the more radical the budgeting should be: A friend of mine managed to cut his family’s outgoings by 70% which involved downsizing their home, changing their children’s school and adapting their lifestyle so they never ate out, cancelled their holidays and bought a lot less petrol. 

Avoiding getting into debt during this time is the key, and it’s not always easy to change one’s lifestyle drastically, but remember it is likely only temporary and probably much quicker than the time it will take to pay off any debt you get into as a result of trying to maintain a lifestyle you had before.

• If you have any debts, address them ASAP

It’s easy to turn a blind eye to credit card bills and wait to pay them off when you’re feeling more flush, but when harder times come it’s crucial to face up to them.

Find out what interest you are paying and see if you can renegotiate this debt so that you’re not paying eye-watering interest rates you can no longer afford. 

Chances are you can lower it by taking out a loan / using an overdraft / finding another way to pay it off that charges you less interest each month.

Getting out of debt should be a couple’s main focus at all times, before saving for a home, before buying a new car or even going on a big summer holiday.

• Build an emergency fund - your financial ‘battery pack’ 

For any individual and couple, the key to financial resilience is to be prepared for the bumps in the road that will - not might - come. 

Like the spare battery pack that stops our phone from running out, it is crucial after paying off debts and before any bigger investments that the next milestone is saving for an emergency fund.

This is what you use to pay for any unforeseen costs that arise - your washing machine breaking, an unexpected bill etc. - to avoid getting into any kind of debt, or having to sacrifice elsewhere from your lifestyle, which is the ideal scenario.

It could be a month’s salary or two month’s of bills, the amount is personal and will change based on your circumstances.

• Know that you’re doing the right thing

It might not feel ‘fun’ to cut your outgoings, including daily luxuries like video streaming subscriptions and gym memberships, or saving for the big ticket items like a holiday, and the cuts may also feel insignificant.

But taking these steps is the right and best thing to do to get financially fit: It is the unspoken key of building financial resilience, wellbeing and wealth, which are all grown bit by bit, over a long period of time. It all adds up.

The sooner you have a handle on exactly what’s coming in and going out and reduce it accordingly, the quicker you can get out of debt, and the faster you’re able to save and have an emergency fund at the ready, the better you’ll feel and the more prepared you’ll be for whatever comes your way.

Good luck!