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November 30, 2003

Unemployment & debt

Lay-offs, downsizing, cost-cutting. No matter how you say it, unemployment is unemployment and it has a number of consequences on an individual or family. The true consequences of unemployment really hit home with me when a friend described the impact of her husband's job loss on their lives, their little girl, their money.

My friend has a good job and earns about $2000/take home pay every two weeks. Her husband was earning $30/hour plus he frequently accrued overtime hours at time and a half ($45/hr). He recently lost his job. His company looked to cut corners and save money. The company did a round of lay-offs to meet this goal. Right or wrong, fair or unfair, the situation is what it is. Fortunately, this particular company put up no fight when my friend's husband and several other employees applied for unemployment.

He recently began receiving unemployment checks, which is helping their situation. But when my friend sits on my patio, I see in her eyes a stress that is far greater than she is letting on. Her concerns? Most of her first paycheck pays the mortgage. Her second paycheck pays all bills: cable, phone and power bills; the one outstanding loan they have and groceries. Her husband's income, now reduced by more than half, goes mostly to daycare. On this day she is sitting outside my house, she relates that their family has $28 to their name until her next paycheck, a week and a half away. Tonight she is going to her mother in law's to pick up diapers for their 6 month old.

Fortunately, she says they do not have credit card debt or they do not know what they would do in terms of preserving their credit reports and having a worse scenario than the one they currently face. They are thankful for having only very little debt, however, the bigger issue here is her husband's inability to find work that pays him comparable to what he was earning at his former company- something that affects them in the short and long term. Currently, he is only able to find work that pays about what he's earning on unemployment.

Thousands of people have found themselves in similar situations in the past few months and years. Many people today have seemingly stable jobs and don't perceive their financial situation to be a dire one. Able to comfortably make the minimum payments on their credit cards, everything appears fine. But I think it's always important to remind people to check your money and be prepared. If an emergency came along, would you be prepared to handle it? A short term emergency can carry long term consequences. The short term consequence is that of having decreased money readily available, but what if you couldn't find a job paying equivalent to what you formerly earned? The long term benefit is a struggle to pay your bills and increased difficulty to save money.

Struggling with money or not, it's always a good time to evaluate your level of financial preparedness. Are you swimming in debt? Do you have a contingency fund, or 3 months of your salary saved? How long could you pay your bills if your income were cut in half or more? Take time sooner than later to evaluate your money and get prepared.

Please feel free to ask questions or make comments...

Posted by on November 30, 2003 at 08:48 PM |

Comments

Dave

In these situations, one has to really consider what's important and what can "go". For example, is cable necessary? If it is, should you downgrade to "basic". If the husband is at home during the day, should he take on some childcare responsibilities to elimate daycare costs?

Take a good look at the lifestyle and see what's necessary and what's not. The fact is, in these situations, most people keep spending the same way as before, expecting that new job to come "tomorrow". Big changes have to occur here to ease the stress.

I've been here before and you'd be surprised with how you can tighten those expenses and give yourself some breathing room.

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