Thursday, October 13, 2011

Personal Disasters: When YOUR World Collapses

In a previous post, I discussed some of the common emergencies and their levels of scope.  Briefly, those emergencies fall into four broad categories (as defined be my after studying the issue):
  • Personal
  • Local
  • Regional
  • National or Global
We're going to take a look at some of the personal emergencies or disasters that can affect you, and give tips on how to prepare for it.  Today's emergency is the personal disaster of unemployment.

Who Said A College Education Is Useless?

During my undergrad years, I had a history professor named Dr. Kiernan.  He was gruff and opinionated, but brilliant. I was astounded at his depth of knowledge and his ability to deliver amazing lectures time after time with no notes whatsoever.  He just walked into the class, grabbed the chalk, and started lecturing. 

One time in a European history class, we were reviewing the Industrial Revolution in Europe, and he asked us what the greatest fear was for anyone in the working class.   Some thought it was an unsafe workplace, while one student said it was contracting a disease that would make the employee unable to work.

Dr. Kiernan smiled at the student and said she was partially right.  The greatest fear of any member of the working class was unemployment.   Without the ability to make money, a person in an industrialized economy would be unable to survive.   

Unemployment is a prime example of a personal emergency/disaster. As an employee or small business owner, a person has some control over his or her employment status.  As an employee you can do the best job you can; as a business owner you can control your expenses and decide how to grow the company.

The problem is that things beyond your control can affect your employment status.  I saw this firsthand when my father, after working in the same coal company for over 20 years, was laid off because coal had become simply too expensive to mine in West Virginia due to the age of the facilities and the company's union contracts.

Think it might be better as the head man of your own show?  Think again.  The U.S. Small Business Administration  reports over 50% of small businesses fail in the first five years. Why? What goes wrong?

The answer is a lot:  lots of competition, lack of capital, poor credit arrangements, etc.  All conspire to stymie the small business owner.  A small business owner may or may not get unemployment. Laws regarding unemployment compensation differ from state to state in the U.S., and each has its own rules regarding who's eligible to receive benefits.

So What Happens When You're Unemployed?

1.  Your income is reduced.  If you have never been unemployed (I have, for two months) you need to know your income is going to go down despite any unemployment benefits you may draw, because unemployment payments are never as much as you were making.  Don't forget you can't draw unemployment forever, either.

2.  If your health coverage was through your job, you just lost it.  Some companies will extend that coverage for an amount of time after you stop working as a form of severance pay, but many won't.   In 1986, Congress passed the COBRA legislation allowing employees to continue coverage at group rates for some time, but generally the company doesn't pay any of the premium and you have to pick up the tab.  So just as your income drops your expenses increase. If you were barely making ends meet, you are going to start running out of money before you run out of month.

3.  Psychological effects:  according to a Rutgers University study in 2009, an overwhelming majority of the respondents said they feel or have experienced anxiety, helplessness, depression, and stress after being without a job. Many said they've experienced sleeping problems and strained relationships and have avoided social situations as a result of their job loss.

How Can I Prepare for the Personal Emergency of Unemployment?

 1.  Get out of debt.   I am a big fan of Dave Ramsey and his system for eliminating debt.   Our family is working on eliminating debt from our lives.   By reducing debt from credit cards, school loans, car payments, etc., we make our money work for us instead of some bank.   Mr. Ramsey uses a particular quote from the book of Proverbs (note the top right of my blog;  Proverbs is one of the greatest compendiums of wisdom ever written) and I repeat it here:

The rich rules over the poor, and the borrower is the slave of the lender.  ~ Proverbs 22:7
 Debt is cancer.  It rots away your finances and your self esteem.   Getting rid of debt reduces your outgoing cash flow and allows you to preserve your money to spend it the way you want it.  It gives you more resources to conduct preparedness planning and purchasing.

Take credit cards for example. If you have a credit card with a balance, thanks to a Congressional reform act your company now is forced to place a little chart on your bill that tells you how much money you will spend paying off the balance and how long it will take if you only make minimum payments.  There is usually a second line that gives another figure and a payoff of three years.  Look at that table the next time you make the bill and note the difference in the total amounts paid.    Look at this example I found online.   I can think of a whole lot of things I can do with that $4,610 in savings, can't you?

By eliminating debt payments, you reduce monthly bills and increase the likelihood that your reduced income will be able to cover your expenses.

 2.  Save money.   Dave Ramsey has everyone in his program start out with a $1,000 emergency fund for expenses we know might be looming over the horizon - the unexpected medical bill, a car repair, etc.   What is more unexpected than unemployment?  If you find out after you have been let go you are going to be $300 short every month after unemployment, guess what?  You have a three month cushion to keep you afloat sitting in your emergency fund.  Ramsey has you accumulate the fund first so that if an unexpected expense comes up you don't have to use a credit card to take care of it.  Good idea.

3.  Stock up on essentials.  I have seen various estimates on how much food is in an average American household at any given time, but instead of quoting that here, I am going to ask you to go into your kitchen the day you read this post and look at what is in the fridge and pantry.   Now, don't buy anything else and try to live for five days on what you have on hand.  If you live in a typical American home, it should prove to be an illuminating experience.

Stocking up on food is not hard.   Jack Spirko at The Survival Podcast has espoused a neat idea called copy canning.  Copy canning is simple.  Whatever you think you need from the store, double the amount you buy.   If you are getting one jar of pasta sauce, buy two.  That way you slowly build a surplus of food and other goods like toilet paper, paper towels, soap, etc.  Set an initial goal to have two weeks of food on hand, then build to a month, and so on.   

How does stocking up help you if you are unemployed?  Remember, your income is going to go down.   Imagine having six months of food stocked away, and not having a grocery bill while searching for a new job? Talk about relieving the stress of being unemployed!

4.  Keep your cars and house in good repair.  This minimizes the chances of a catastrophic repair bill while your income is reduced to unemployment compensation.

5.  Keep your skill set sharp and be ready to hit the job hunt as soon you find out you are going to lose your job.

These are the basics in preparing for unemployment and a glimpse of how being into preparedness can help you weather your own personal emergency.


  1. I pulled myself out of Credit Card Debit about 2 years ago. I was only able to do this with a lot of self-control. I make a good salary but like may other people, I sometimes feel entitled.

    If you are considering a purchase you should always sleep on it first. Far to often people get caught in a impulse buy which only wastes money.

    You will be amazed how much you can save if you don't have Credit Card Debt.

    I have a about an eight month emergency $16k saved. I purchased a slightly used low millage car $12k in cash. Now saving for a new house (selling my current one) $7k.

    All this in just 2 years from owing that much on Credit Cards.

  2. Thanks for the comment! It's going to take awhile, but we're getting there.