By Lynnette Khalfani-Cox
The Grio
6:04 AM on 04/01/2011
Related NewsUS unemployment rate falls to 8.8 percent
Aging black workers face tougher job market than white peers
As President Barack Obama and his economic advisers work to stimulate job growth in the United States, many economists are predicting that the country's current unemployment woes won't disappear anytime soon.
This begs a troubling, but important question: What should you do if chronic, high unemployment persists for many years to come?
Already, 1 out of 3 job seekers has been out of work for a year or longer. And though unemployment is currently at 8.8 percent nationwide, it's much higher in communities of color. For instance, the jobless rate among African-Americans actually increased this past month, to 15.5 percent.
If widespread, unusually high unemployment is -- or becomes -- the new normal in America, here are five ways to cope financially:
Downsize Now
For most Americans, housing eats up the biggest chunk of their income. Whether you're a homeowner or a renter, you're likely paying about one-third or more of salary (or your unemployment check) for shelter. In high cost areas of the country, like New York, it's not uncommon for people to spend 50 percent of their pay on housing.
Historically in the U.S. people have downsized to smaller homes as they've entered retirement (around age 65) or as the kids grow up and leave home. But if you're currently out of work, or fear that your job may be at risk, a smarter strategy is to downsize now -- even if you're only in your 30s, 40s or early 50s.
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Having a smaller home offers a host of financial benefits that could help you rid out a prolonged jobs downturn. You'll have a smaller mortgage (or cheaper rent). A smaller house or apartment also means you'll need less stuff, so you'll wind up doling out less cash for furniture, electronics and household goods. Plus, if you're a homeowner, who downsizes you're likely to have lower property taxes, a smaller home insurance bills, and more manageable utilities costs as well.
By the way, downsizing doesn't always have to mean going to a smaller living space. Many Americans could benefit from downsizing financially and moving to less expensive parts of the country. That's precisely the pattern occurring now as more people relocate from places in the Northeast to regions in the South, including Atlanta and North Carolina. The trend is particularly strong among college-educated blacks who are flocking to Atlanta for better career and economic opportunities.
Limit All Forms of Borrowing
During periods of economic uncertainty, it's best to be wary of all forms of borrowing as repaying those debts could become problematic if you lose a job and remain unemployed for a long period of time.
With the jobs market so competitive, many people are considering going back to college to improve their educational credentials and move up the corporate ladder. Getting a college degree is fine, but right now getting into college debt isn't. The same is true of buying a more expensive home and taking on a bigger mortgage, financing a new, expensive car, or even just opening a rash of new credit cards.
All of these are debts that must be repaid and if you can't do so consistently, without fail, you could be setting yourself up for problems down the road in the job market because employers are increasingly using credit checks to determine who to hire and promote.
Consider Entrepreneurship
If businesses don't add to their payrolls and you're out of work for a prolonged period, why not make up your own job? I often tell people considering entrepreneurship that it's sometimes easier to find a client (as a small business owner) than it is to find a job (as an employee).
Making the leap from employee to entrepreneur, of course, is no easy task. But surveys consistently show that millions of Americans -- especially many minorities -- would love to quit their jobs, and start their own companies.
Unfortunately, fear is one of the biggest factors holding back many would-be entrepreneurs. Not to mention, worries over finances. But if more people would take the entrepreneurial plunge -- by pushing past their fears and not buying into the notion that only a "regular job" provides for economic security -- then high rates of unemployment would be less worrisome for these individuals.
Favor Freelancing Over Full-Time Work
Of course, not everyone is cut out to be his or her own boss and run an entire company. Some people don't want to deal with payroll issues, personnel, or perhaps overseeing the creating and distribution of a product or service.
Enter the world of the freelancer. You still have to do many things that an entrepreneur does -- like making sure you pay taxes and marketing your services.
But the life of a freelancer affords you the chance to pick and choose which assignments you take on, determine when you want to work and which projects you'll tackle, as well as piece together an income stream based on contract work from multiple sources.
Freelancers can be found in every industry -- whether they are website developers, consultants of all kinds, and yes, even writers.
For example, as a Money Coach, I own my own business and love the life of an entrepreneur. As part of my entrepreneurial pursuits, I spend about one-third of my time writing as a freelancer -- for theGrio and other sites as varied as AOL Black Voices and AARP. My writing activities don't merely offer me a media platform and a way to supplement my income. Equally important, freelance writing provides a way to diversify my income, and having multiple streams of income is advantageous in a shaky jobs market.
5) Create Your Own Safety Net
I believe far more individuals would pursue their true passions as business owners or freelancers (or a mix of both) if they realized that they could do so with a safety net that they create and personally control.
This tangible safety net comes in the form of a broad array of benefits traditionally only associated with the corporate world. Few people know that virtually every benefit offered today by an employer can be readily duplicated - and in many cases improved upon - by today's entrepreneur working for him or herself.
Let me explain this briefly in clearer terms. That 401(k) plan held out by companies as the ultimate perk for employees is also available to small business owners. If you work for yourself, the relatively new "solo 401(k)" lets you sock away retirement money on a tax-advantaged basis, affording you the same treatment from Uncle Sam that rank-and-file employees and corporate executives get.
You say you have a traditional pension plan at work - or want one in a job? Well, good luck finding any corporate employer still offering a traditional pension. But a newly created "solo pension plan" also exists for entrepreneurs, and it's far more flexible and allows you to save exponentially more money than you could as an employee working for someone else.
What about those health care benefits, which have some of you still hanging around at jobs you don't like? You can create a health savings account, or HSA, which is portable. If you leave your job, you take the money with you to pay for medical expenses.
Disability protection offered through most employers is so low as to almost be laughable. Life insurance coverage afforded via your job typically amounts to two to three times your salary. Financial planners agree that this too is woefully inadequate for most people who truly need life insurance.
While estimates vary greatly, financial advisors suggest that you have life insurance anywhere from five to 15 times your income. Even if you stuck to the low end of these recommendations, it's clear that the coverage you're getting from your workplace - or could get from a job -- would not be enough to keep your family afloat in the event of your death. You can get more insurance -- at a reasonable price -- independent of your current job, or any job you might land in the future.
6) Remember A Simple Economic Truth
Martin Luther King Jr. once said: "Take the first step in faith. You don't have to see the whole staircase. Just take the first step." For those who are fretting over the prospect of a long-term downturn in the jobs market, maybe you need to take the first step toward entrepreneurship.
Maybe others of you need to downsize financially.
No matter what your job circumstances, one thing is clear: we all need to change our thinking and wake up to a simple economic truth: In reality, the biggest risk to your pocketbook isn't likely to be something as drastic as you deciding to become a business owner.
Actually the biggest risk today for both employees and job-seekers is to pin all your financial hopes and dreams on a single job, under the misguided assumption that it will offer you true economic security.
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Friday, April 1st 2011 at 11:13AM
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