Have you ever stopped to consider the cost of being unemployed?
The experience of unemployment often brings an interesting conundrum. It resembles the feeling of being at a crossroads with no light at the end of the tunnel. If you have been through unemployment, this experience will seem familiar. Most people know this dreaded feeling.
You see, many jobseekers stay stuck in their "pain", not wanting to make the next career move or rather, not knowing what the next move looks like.
The irony:
the longer you are out of work, the more costly it is and often the longer you remain unemployed, the more money and momentum you lose with each passing day. And yet, since the pandemic and accompanying economic unpredictability, many people are currently facing this crisis of long-term unemployment.
There is a solution, however.
But you need to do your research first to get "unstuck".
Then you need to consciously choose to get out of that "stuck" mode to one that spells creativity, spontaneity, and inspiration, and embrace a new horizon!
Here are some things you need to consider as the “cost of unemployment.”
Lost wages.
Loss of income is an obvious cost of unemployment. Unemployment benefits—if you’re eligible—only cover a portion of your lost income. According to Newsweek, basic unemployment benefits average $300-$400 a week, typically covering 45% of a worker’s income. Severance pay, if offered, can help, but a long period of unemployment can outlast that as well.
Cost of insurance.
According to the 2019 Census, 55% of Americans have employer-paid health insurance. Research from the Kaiser Family Foundation found the average annual single premium per enrolled employee for employer-based health insurance was $6,972 per year in 2019, with the employee contributing $1,489, and the employer paying $5,483.
For example, the Consolidated Omnibus Budget Reconciliation Act (COBRA) health insurance program allows eligible employees and their dependents to continue their health insurance coverage for 18 to 36 months after a job loss. However, the entire cost of the premiums must be paid by the individual. Based on the average, that means you would be paying almost $600 a month in health insurance premiums to keep your existing coverage.
If COBRA coverage is unavailable, individuals can obtain insurance through the government’s Healthcare Marketplace, but that coverage can be expensive. A short-term health insurance policy may be more affordable, but may have a higher deductible and limited coverage. Going without healthcare insurance is risky financially. Medical bills are reported to be the number one cause of U.S. bankruptcies, and being uninsured can lead to significant out-of-pocket expenses.
Lost retirement contributions.
If you were contributing to your company’s retirement plan—especially if your contributions were matched by your employer—consider the financial impact of missing out on adding to your retirement savings. Every $500 missed could be worth up to $1,300 (assuming 5% growth over a 20-year period). Missing out on six months’ worth of retirement contributions could equal almost $8,000 in lost retirement income!
Increased stress and anxiety.
According to CNBC, 63% of households report living paycheck to paycheck, meaning the loss of even one month’s salary could cause severe financial insecurity. Eight in 10 people say they currently can’t cover a $500 emergency. Research also shows that unemployment is linked to anxiety and depression, among other negative outcomes.
Negative impact on future salary.
When you’re unemployed, you may take a lower-paying job just to get back into the job market. However, since future raises are based on your new (lower) starting salary, you may find yourself missing out on tens of thousands of dollars of future income.
For example, if your original salary was $50,000, and you received annual raises of 3%, after 5 years, your salary will be $56,275.
If you took a job that paid $45,000 and you received annual raises of 3%, after 5 years, your salary will be $50,647—barely what you were making when you left your previous position. You would have also missed out on $26,544 in pay during those five years ($265,453 from the starting salary at $50,000 plus 3% raises minus $238,909 – five years of salary starting at $45,000 with a 3% annual increase).
You may also make unwise financial decisions out of desperation. For example, you might cash out your 401(k) fund to free up some cash to cover your living expenses. However, with limited exceptions, if you withdraw money from your 401(k) retirement account before the age of 59-1/2, you will pay a 10% early withdrawal penalty, plus income tax, on the distribution.
For someone in the 24% tax bracket, an early withdrawal of $5,000 will cost $1,700 in taxes and penalties. In addition, you’ll lose out on the future growth of that $5,000. Invested for 20 years at 5%, that $5,000 would have grown to more than $13,000.
The best thing you can do if you find yourself unemployed is to get back to work quickly.
So, how can you prepare for unemployment?
First—and most important—keep your résumé up-to-date and ready to go.
Not only is it easier to pay for résumé services when you’re employed, but you won’t lose valuable time getting started with your job search. It can take a few days to a few weeks to create an interview-winning résumé and portfolio of career documents. The sooner you are able to start your job search, the closer you’ll be to going back to work. Also, the longer you are unemployed, the harder it is to find a new job.
Second, have an emergency fund.
One of the biggest struggles with unemployment is losing your income. Unemployment benefits (if you’re eligible to receive them) can take weeks to get approved. In the meantime, having an emergency fund—even a small fund of 2-4 weeks of expenses—is better than nothing. Most experts recommend having 3-5 months of savings.
Third, the best offense is a good defense.
If you think you’re in danger of losing your job, batten down the hatches. Make a list of your current expenses (review your checkbook register, credit card statements, or online banking profile) and see what you can cut out. Determine which of your current monthly expenses must be maintained (mortgage and car payments, utilities, groceries) and which ones you can do without for now. Eliminate any unnecessary expenses.
Finally, it can be easier to find a job when you have a job, so don’t wait until you lose your job to start looking.
And take the advice of author, Harvey Mackay,: “Dig Your Well Before You’re Thirsty”. Cultivate your network while you’re still working. Build your connections on LinkedIn. Keep in touch with former co-workers and supervisors.
After all, the cost of unemployment is high. Much higher than you may have thought.
The long-term solution?
If you want to reduce the amount of time that you are unemployed or might be unemployed in the future, weigh the high costs of unemployment. The cost of a simple investment in your career, starting with a résumé package, pales in comparison to the costs of unemployment the longer you remain unemployed.
And think of how much you will gain with professional career support-- greater clarity and confidence, valuable resources, and of course, a stellar résumé package that will help position you for a great job offer! That is essentially priceless!
My secret? My master-level résumé strategy and holistic coaching using my award-winning A-B-C-D Method.
If you are not still convinced about the opportunity costs, then view the chart attached:
This chart will help you determine how much it costs in lost wages each week that you remain unemployed.
If you want to reduce the high costs of unemployment and get "unstuck" from your career struggles, and you are ready to tackle your next career move, call Creative Horizons Communications at 905.730.2374. We provide strategic solutions to enhance your career success!
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