Saving Money While You're Unemployed or Have Reduced Income

Foot-dragging by the U.S. Congress means that more than 200,000 laid off workers could lose unemployment benefits this week. Some of these people will need to dip into their savings to survive.

If you're out of a job, and trying to stay afloat financially, here are some economic tips to get by and help you save.

Anytime you have a substantially reduced wages, or an outright elimination of income, it means you have to completely overhaul your budget and evaluate the best use of your savings. A few tweaks, changes and minor pullbacks here and there just won't do if you've been laid off or had big cuts in your hours or pay. As a result, you must drastically slash your current or previous spending, and also think about creative ways to raise cash. Otherwise, you risk falling deep into debt – and you'll never be able to save money.

How to Overhaul Your Budget

Before you look at "extras," and any "luxuries" you may be spending money on, start by examining the very basics: like your phones, housing and car. Often, the things that we think are "necessities" have to be sacrificed just temporarily when there is a major shift in income.

If you're self-employed, it may be the case, for example, that you have multiple phones. Perhaps a cell phone, a business phone and a personal home phone. If so, consider which one – or maybe even two – of those phones you can live without on a temporary basis until you restore your income. This is the kind of thinking that will help you figure out how to get through this economic rough patch.

This advice is also applicable to anyone who:
• Has been laid off recently, for a long time, or expects to be unemployed soon.
• Has seen a big decline in self-employment income.
• Has had has their hours on the job cut.
• Has had their hourly salary or regular pay slashed.
• Has found a new job that is substantially less than the income previously earned.

Lifestyle Choices

Overhauling your budget to save money also means making tough choices about your lifestyle. An example of a major lifestyle change might be considering where you live. Do you rent or own? Can you find cheaper housing, a less expensive neighborhood, or is bringing in a roommate an option?

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Great Ways to Save

Don't Skimp on Soft Clothes

But, do skip the fancy fabric softener. That doesn't mean you have to put up with scratchy clothes! Besides being a pain to remember, fabric softener is one of those extra expenses you can cut without sacrificing. You can still get the soft clothes you love by using those plastic nubbed balls they sell for your dryer. Simply toss the balls in with your clothes and they'll do the work of that fabric softener for a lot less money.

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Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Your Car's Maintenance

Car maintenance is NOT something you want to skip as a cost-cutter. All cars need regular maintenance -- an oil change every few thousand miles, a tune-up once or twice a year, etc. -- if you want your car always to be reliable and last as long as possible. One of our radio show listeners didn't change her brake pads and, after a time, ended up with worn down rotors that cost a bundle. Instead, save by cutting out the pricey premium gas. Most cars "recommend" premium, but don't require it, so ... go for the lower or middle grade gas instead of the high grade if your car runs fine without it -- check your owner's manual.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Lipstick

Ladies, don't feel guilty about buying that beautiful new lipstick for Spring next time you are at the department store. Studies show that more expensive lipsticks actually have color that lasts longer because they have more pigment in them. To offset the cost, don't buy the fancy (and expensive) brand-name mascara at your department store. Study after study shows that most mascaras use the same ingredients, so use a less expensive version from your drugstore or Wal-Mart. You'll look great and pocket some savings!

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Pet Food

If you love your dog, you won't skimp on their food. Studies show that cheaper food contains more filler -- such as yellow corn, wheat gluten and corn syrup -- that are bad for your pet. Food that is made of natural ingredients might be more expensive per pound, but it can help keep your pet healthy (avoiding those extra vet bills!) and keep them from putting on weight. Plus, you will usually need to feed them a smaller amount of healthier food since they are getting more nutrition and less filler. If you want to cut back on pet costs, skip the toy aisle at the pet store. Is your dog really going to notice if you skip the $15 fancy toys and toss him a good old tennis ball instead?

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Brand-Name Toilet Paper

Look, we're as frugal as the next guys ... but let's not take this too far, OK? Bottom line is that brand-name toilet paper is, generally, simply better. Most of the less expensive store-brand products just aren't as soft and have less tissues per roll (which means a much shorter lifespan) so you're paying more "per sheet," if you will. But do save money by using the store brand napkins. All you're paying for is the brand name and the pretty print on the napkins. Store brands work just as well.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Doctor's Visits

No one likes going to the doctor, so it might be extra tempting to skip that check-up because it will save you some money. Don't do it! Your health is not an area you should be skimping. Instead, save money on health care costs by using generic drugs rather than name brands whenever possible and OK'd by your doctor. Numerous studies have shown that, since the active ingredient in many prescription medications are the same, most "name-brand" drugs are no better than their generic counterparts.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Fresh Produce

Speaking of the doctor ... the old saying about "an apple a day keeps the doctor away" still holds true, so don't skimp on buying fresh fruits and vegetables. Yes, fresh fruit and vegetables have become pricey. But, rather than cutting back, use these tips to spend less. You can save on fresh product by visiting your local farmers' market or produce stands, by only buying what's in season and by buying what's on sale when you are at the grocery store.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Organic, Except ...

Unfortunately, organic produce is pricey -- 30-50 more than regular produce. We know lots of people who believe in buying organic produce, but are ready to give it up as an expensive luxury. Rather than give it up altogether, focus your buying on those fruits and veggies where organic matters most. Buy conventional for produce that uses very little pesticide, such as onions, avocado, sweet corn (frozen), pineapples, mango, asparagus, sweet peas (frozen), kiwi and bananas.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Contributing to Your 401(k) or IRA

Cutting contributions to your retirement savings should be one of the very last things that you do. Be sure that you've eliminated all of the unnecessary expenses from your life before you consider this drastic step. This is your future you're messing with! Instead of skimping on your retirement plans, skip that daily Starbucks run instead. Heck, at $3+ a day for a cup of Joe, you'll save $90+ a month or more than $1,000 a year! That one change alone can help tremendously ... and we're sure there are other mostly painless cuts you can make in your life without sacrificing your retirement savings.

Dont Skimp on These Things; Ways to Save Instead

Don't Skimp on Foundation

Listen up ladies ...you might be able to save a few bucks buy using a cheap foundation, but it might add years to your age. More expensive brands tend to have better, longer-lasting pigment. That means you also use less, stretching your dollar and avoiding a thick layer of foundation that can make you look older. Instead, cut your beauty budget by going with cheaper nail polish. Did know that all nail polish basically uses the same ingredients? So choose a less pricey brand without worries.

Dont Skimp on These Things; Ways to Save Instead

Also, what about your car? Can you sell it, if necessary, and use public transportation to increase savings? If you have car payments, is getting a friend or relative to take over those car payments at all feasible? I recognize that these are big shifts. But sometimes you have to dig deep when things are far more challenging than the norm. That's why I usually recommend these strategies for people who are already facing bills they can't afford, or for those who have had major reductions in their income.

Negotiating and Bartering

As you consider your options, don't forget about one of the best saving strategies of all: negotiating. Whenever you are about to buy something, ask for a discount. Ask for a discount for paying for goods and services, like medical care, in cash instead of with credit. Ask for a discount if you're at a store and you're buying two or three of an item, instead of just one. You can even ask for, and negotiate, to receive products and services free of charge – if you're willing to exchange your time, talents and services as well.

For instance, I once had a massage therapist write me on my free financial advice blog, http://www.AskTheMoneyCoach.com. She was struggling to stay afloat financial because her business was off by 50%. I told her that tax season is no doubt a stressful period for accountants. So instead of paying a CPA to do her business tax returns, I suggested that she offer to provide a one-hour massage or treatment to her accountant.

You can barter too. The idea is to think creatively about you and another person can exchange value – without exchanging dollars. That's a win-win situation for both parties and one that will help you to save money and more quickly bounce back from an economic slump.

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Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has also been featured in top newspapers including the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times bestseller, 'Zero Debt: The Ultimate Guide to Financial Freedom.'