Opinion: Don't Let Unemployment Catch You By Surprise

Unemployment seems to be the wild card, the fly in the ointment, the flaw in the best laid plans. People take on debt and enter into mortgage agreements counting on the income from their employment. Many foreclosures have taken place recently because families were counting on two incomes and were unable to meet their financial obligations in the wake of a lay-off or job loss. Credit card interest rates get kicked up to loan shark levels for those missing a payment or two while scrambling to make ends meet after hours being cut at work or being let go from their job. With unemployment reaching levels not seen in decades, it is essential to fiscal health and well being to take a proactive approach to ensuring that it doesn't sneak up on you to wreck havoc on all you've worked so hard for. On May 22, 2009, Bloomberg reported that “West Virginia, Ohio and Rhode Island showed the biggest increases in unemployment in April as the worst job slump in the post-World War II era rippled through the economy.” Those with an interest in history may recollect that World War II brought with it the end of the Great Depression, meaning that those states are experiencing the worst job slump since the Great Depression. Of course, those that feel uncomfortable in hearing this era compared to that are quick to point out that such a comparison cannot be made because the Great Depression had an unemployment rate of 25 percent. However, those that dismiss such comparisons ignore the fact that the Great Depression did not start out with a 25 percent unemployment rate. Furthermore, the means of measurement have changed since then. For example, those who have given up looking for work and those that are underemployed are not included in the modern day figures to the same degree. According to methods of measure more in line with what was used then, according to some researchers, such as John Williams of ShadowStats.com, as explained by SmartMoney.com writer Jack Hough in a June 6, 2009, article, unemployment is hovering around 20 percent. Part of what is driving the increase in unemployment has to do with the malaise the overall economy is experiencing right now, which has contributed heavily to a decrease in consumer spending. With about 70 percent of the economy depending upon consumer spending, a significant slowdown in spending is bound to ripple throughout the economy. According to a June 1, 2009, Bloomberg report, “U.S. consumer spending fell for a second straight month as concern over rising unemployment and record wealth destruction prompted households to boost savings rates to the highest level in 14 years.” And, that is after a precipitous fall in spending during the final two quarters of 2008. While the unemployment figures are enough to cause worry, the important thing to remember is that, even in the Great Depression, 75 percent of the workforce was employed. Furthermore, a solid plan of action devised before a crisis strikes can go a longs ways towards mitigating its effects, particularly when dealing with finances. Part of creating a solid plan of action is knowing how to prioritize. In a June 8, 2009, article titled “Ten Things You Must Do,” Karl Denninger of The Market Ticker offers excellent advice. In Denninger's view, one of the most important things you need to be doing right now is working to reduce debt with an eye towards eliminating it, especially high interest credit card debt. With the crushing interest rates associated with credit card debt, a debt consolidation loan may be an option well worth considering as a means of reducing the cost of that debt. In the event of a job loss or other financial crisis, the lesser your debt, the greater your fiscal freedom of movement. Increasing personal savings with a goal of setting aside living expenses able to cover a few months of being out of work is also essential. Getting into the saving habit will offer protection and create a cushion that will help avoid having to fund emergencies with high interest credit. Diversification of income is another important aspect of financial survival in tough economic times. If all of the fiscal eggs are not in a single basket, a job loss isn't as damaging. During the Great Depression, many families were saved by taking in laundry and such. With the Internet, starting a home-based business is easier than ever before. There are numerous legitimate opportunities to increase household income for the person with a plan, including the classics such as selling Avon or running a home daycare. The government itself is surprised at the unemployment numbers, as Vice President Biden made recently made clear. A June 14, 2009, Associated Press report placed the national unemployment rate at 9.4 percent in May. Regional unemployment rates are significantly higher, well into double digits. According to a recent article by Wheaton College economics professor John Miller, “as of May, unemployment rates for black, Hispanic, and teenage workers were already 14.9%, 12.7% and 22.7%, respectively. Workers without a high-school diploma confronted a 15.5% unemployment rate, while the unemployment rate for workers with just a high-school degree was 10.0%. Nearly one in five (19.2%) construction workers were unemployed. In Michigan, the hardest hit state, unemployment was at 12.9% in April. Unemployment rates in seven other states were at double-digit levels as well.” The fact is, any fiscal plan right now has to consider the possibility of unemployment to be viable. Whether thinking about entering into a mortgage agreement, taking out a car loan, using a credit card to make a major purchase, or formulating a plan for managing finances during this period of economic uncertainty, factoring in the potential of a period of unemployment or reduced income can help prevent a difficult situation from becoming a critical one. Planning for the possibility of unemployment can give you the financial flexibility you need to make it through a tough financial situation.