Monday, June 8, 2015

Prepping 101: Finances - Get Back to Basics

One of the foundations of self-reliance is sound financial management. It is an area of self-reliance often overlooked. It can be a complex issue. It requires discipline. Some people find the topic of money to be uncomfortable, even crass. Regardless of the excuses, anyone seeking self-reliance will have to deal with their personal finances at some point. This article provides a starting point to help folks take control of their personal finances.
 
During times of change, uncertainty, and chaos, one of the safest and most effective financial strategies is to simply "get back to basics" - to do all those things we probably know we should be doing anyway, but which are so easy to get away from during the good times. But, what exactly are the basics? And how do we get back to them?

Ponder this: Your family's income is suddenly cut in half, permanently. What changes in lifestyle will your family have to make to adapt to your new reality?  

Get back to the financial basics.   What are the financial basics?
  1. Spend considerably less than you make, and make savings a regular part of your life. 
  2. Have a well-funded emergency account in a safe, well-established credit union or small bank.
  3. Keep a small amount of cash at home in a safe place.
  4. Get out of debt, and avoid getting into new debt.
  5. Learn to be entertained without having to spend a lot of money.
  6. Avoid participating in fads and joining in fashionable trends.
  7. Avoid impulse purchases.
  8. Be very careful investing in the stock market. If you do invest, make sure you have an emergency fund and no consumer debt first. Then, be a value investor, only investing in well-established companies for the long-term. Read Benjamin Grahams' The Intelligent Investor to learn about value investing. 
  9. Do put some savings into precious metals, but not all your savings. 
  10. Avoid financial gimmicks and get-rich-quick schemes.
  11. Learn accounting to really understand the language of business.
  12. A homestead and land can be a great investment. 
  13. Insurance is a good thing. Make sure your insurance company is sound by checking with rating services, reading their financial statements (one reason you should learn accounting), and paying attention to the news.
  14. Understand economics. I suggest starting with Richard Maybury's Whatever Happened to Penny Candy? for a quick, easy, and accurate read on economics.
Eliminate debt and build savings.  Bad economic times are especially difficult for folks who live paycheck to paycheck (which is most of the middle class in America today), in debt up to their eyeballs and with little or no savings. Debt – whether personal, business or government – is bad. It creates stress and makes one much more vulnerable to economic downturns.

In your personal life, work quickly towards eliminating consumer debt – credit cards, car loans, payday loans, personal loans, and installment plans. This will mean you have to put yourself on a budget and stick with it. It will mean putting off major purchases, avoiding impulse purchases, and *gasp* denying yourself luxury items. It may mean taking bag lunches to work. Or selling your car to get out of the loan, buying an older model with cash, or perhaps making do with only one. Consider having a major yard sale to raise some money, or try to find a second job. It will take time and sacrifice to eliminate debt in your life, but the benefits will be more than worth it.

Building some emergency savings will have to be done at the same time. Yard sales are a great way to bring in extra cash to do this. So is a second job in the evenings or on the weekends. Put the money somewhere safe, such as an insured CD or money market account in a stable bank or credit union (do your own homework, or check with one of several companies that offer ratings on the soundness and safety of various financial institutions). Don't worry about getting the best possible interest rate. Safety and liquidity is the goal for your emergency savings, not growth.

Pro Tip: Check out Dave Ramsey's Baby Steps and read his newest book Dave Ramsey's Complete Guide to Money.

Once your debt is paid off and you have accumulated some emergency savings, you can then turn your attention to saving for long-range goals. Use common sense, avoid overly-risky investments, and, if needed, seek professional advice of someone you can trust.

No investment is perfectly safe. Cash savings are subject to losing value to inflation. Stocks and mutual funds are subject to the ups and downs of the market. Land is subject to property taxes and eminent domain. Converting all your money to gold & silver and burying it in the backyard is subject to thieves. There are no guarantees in life. The best you can do is use reason and common sense, to remain vigilant, and to take responsibility for ensuring your own future.

Why pay off debt if we are headed towards high inflation?  It may be true that by waiting to pay off debt, you will be paying it off with cheaper dollars. However, there are other considerations. For one, debt puts you, your family, and your assets at risk. Pay off your debts now while you are employed and you run less risk of losing your home or other assets if you become unemployed later.

Debt can be very stressful, especially in difficult times, which can be a real detriment to your health and your ability to make calm decisions at a time when you most need both.

Proverbs 22:7 "The rich rules over the poor, and the borrower is the slave of the lender." (NKJ)

Another reason is that debt can shackle you to your current job and circumstances, when what is really needed at a time like this is freedom and flexibility.

Finally, people tend not to realize how fast interest, late fees, and other penalties can add up. You may be paying off your debt later with cheaper dollars, but still end up paying more in real terms because of all the added interest and penalties.

Small purchases add up to big money.  Money spent on little things - sodas, snacks, and impulse items of all sorts - can add up really quickly. A great example is a guy I used to work with who constantly complained about not having any money. Every afternoon he would head down to the break room and buy a Pepsi and a Snickers bar from the vending machine. It was only a $1.75, but he spent that money five days a week. Over the course of a year, that adds up to almost $450.

Take Bag Lunches (Eat Out Less).
Taking a bag lunch of leftovers to work with you instead of buying lunch at the local fast food eatery will save you big bucks over the course of a year. How much? If you spend five dollars a day for lunch, that is $1,250 a year (I am assuming you take two weeks off). Eating out is a huge piece of most people budget. A piece that can be easily reduced. 


Rethink your telecommunications expenses.  When I was a young child (the 1970s) the only telecommunications expense my family, most families, had was the telephone and that was a land line, of course. TV was over-the-air and free. There were no cell phones. And no one had a computer, much less an Internet connection.

Today, many (most?) families pay for multiple cell phones, special ring tones, texting privileges, unlimited data plans, cable or satellite TV, extra movie channels, Internet connections, subscriptions to Netflix, Hulu, or other content providers, satellite radio subscriptions, and, in some cases, still pay for a land line. All this can easily add up to hundreds of dollars a month for many families - thousands of dollars a year. Huge savings can be found in this bloated budget category.

Mostly, these things are used as distractions, and often are a major contributing factor to obesity and a lack of physical fitness. Replace these distractions with learning, reading, exercise (gardening, hiking, tennis, golf, swimming, etc.), and shared activities such as a family game night.

When I mention cutting back this category, I occasionally hear people whine that they really need a cell phone or Internet connection. Fine. You must decide for yourself what you really need and don't need. But even if you do need a cell phone for emergencies and such, you don't really need a smart phone, special ring tones, unlimited text and data, or the largest minutes package available. I have a cell phone myself, but it is the basic model that I got for free when I signed up. I can text and make phone calls as easily on my cheap phone as you can on your smart phone. A cell phone may be a necessity for many today, but all the expensive bells and whistles are luxuries you probably can do without.

The same thing goes for cable or satellite TV. Do you really need to have all the movie channels? Do you really need all the HD channels? Do you really need the expanded package with all the sports channels and all the music channels? Or can you get by just fine with the much less expensive basic package?

Or better yet, do away with TV altogether. Radical idea, but somehow humanity survived for thousands of years before TV, so technically it is possible.

Reduce your entertainment expenses. Modern folks really hate denying ourselves, but entertainment is a purely optional budget expense. Eliminate it. Learn (or re-learn) how to have a good time for free or nearly free. Talk a walk with your spouse or with a friend. Start a family game night. Play with your kids in the backyard. Invite friends over for a weekend cook-out, or a movie night (with the DVD checked out from your local library for free). Next week they can invite you over.

Read a book (checked out from the library for free, of course) instead of going to a movie. Libraries are a wonderful source of free entertainment. In addition to books and magazines, many libraries today also offer audio books, movies on DVD, music CDs, and even board games that you can check out. Many have story times for young children and lecture series for adults you can attend for free.

Give up the vacation away from home.  Staycations are a hot new trend. Instead of heading for the beach, or Disneyland, or wherever, stay home. Spend a week visiting local museums, zoos, botanical gardens, historical sites, parks, or wildlife refuges. Go on a picnic or nature hike. Go fishing at a local lake. Play frisbee with your kids in the backyard. Or just relax at home, thinking of all the money you are saving.

Reduce you home energy use.  Turn off lights, TVs and electronics whenever you leave a room. Set your thermostat to conserve energy. Replace old appliances with new, energy-efficient models. Super-insulate your house. Consider installing energy efficient windows. Simply filling in gaps where pipes & wires come into the house (especially check your kitchen, bathrooms, utility/laundry room, and basement) with a can of spray foam insulation can save you a surprising amount on the cost of heating and cooling your home.

Many power companies offer free or low-cost home energy audits for their customers, which can identify weak points in your home's insulation and other energy wasters, along with advice to reduce your energy use.

This is one area where spending money now to greatly reduce your energy use can actually save you a lot of money in the long run.

Reduce the amount of fuel you use. Make sure your vehicle’s tires are properly inflated and the engine is well-maintained in order to maximize mileage. Drive less by walking, car pooling and using public transportation, as well as planning & combining trips. Consider replacing your old vehicle with a newer one that gets much better mileage. Check out my essay Three Changes to Save Big on Gas.

Avoid Impulse Purchases.  Manufacturers and retailers spend huge sums of money to get people to buy their products, no matter if they actually need them or not. Advertising is just one way they influence people. Everything from the color of the packaging to the placement of the product in the store is carefully planned to get you to buy. Here are several ideas on how to fight back and avoid buying stuff you don't really need:
  • Don't to pay attention to TV, radio, or print ads. Hit the mute button. or simply don't watch or read the ads.
  • Don't watch infomercials or home shopping channels.
  • Leave junk mail unopened. Recycle catalogs, flyers, and leaflets unread.
  • Don't use shopping as a form of entertainment or a means to relax.
  • Shop only with lists, and stick to them.
  • Don't browse Amazon, eBay, or other Internet sites. Shop them the same way you would a physical store - with a list.
  • Shop with cash only. Spending cash feels more real than using checks or credit cards, so you are apt to spend less.
  • If you do find an item you think you can't do without, wait at least 24 hours before buying it. Chances are the impulse will pass.
Precious Metals.  Silver and gold are very unlikely to help you survive in the midst of a disaster of any sort. Bottled water, food, and warm, dry clothes, shoes, & blankets will likely be much more important, and a “currency” in much greater demand, in the midst of a disaster than gold or silver. Look at the immediate aftermath of Hurricane Katrina – people were desperate for clean water and dry clothes, not cash, gold or silver.

However, silver and gold may make a good hedge against inflation in a mostly “business as usual” atmosphere. And in the long-term aftermath of a major disaster that includes an economic and political collapse, gold and silver will likely prove to be extremely important as a currency, but only as society begins to reorganize and looks to stores of wealth other than devalued and worthless currencies, and collapsed credit markets.

Another thought: In the aftermath of an economic collapse, it will be virtually impossible to enforce any certificates or other paperwork that say you own gold or silver that is being held for you by a broker, financial intuition, or anyone else. Any gold or silver you own that is not in your physical possession will most likely not be recovered by you if a complete economic and political collapse occurs. If you believe an economic collapse is likely, take physical possession of your gold and silver before the collapse occurs. Naturally, keep your gold and silver in a safe and secure place, and make sure as few people as possible know you have it.

So, how much should you invest in precious metals? It depends on your situation. First, make sure your other basics are covered - especially paying off your consumer debt and setting aside an emergency fund. Once that is done, many financial experts recommend folks keep about 10% of their money in precious metals. I personally would recommend at least 20%, given the state of world affairs. Again, this is only after you have covered your other financial basics. Decide for yourself what is best for you.

 Ways to Raise Money.  Prepping can be expensive. I wish I had a magic solution to the problem of how to raise money to buy supplies, take courses, and make preparations, but I don't. No one, not even Uncle Sam, is giving out free money for people to become more self-reliant. The only ways to raise money that I know of entail sacrifice of time, talent, effort, or property. Here is my list of ways to raise money:
  • Get a raise, or more hours, at your primary job. Tough to do during bad economic times, I know, but a great way to raise extra money if you can pull it off.
  • Get a second, or third, job. I worked a second job for years at a B. Dalton Booksellers, mostly on weekends. It only netted me about $60/week (this was 20 years ago), but over the course of a year that is more than $3,000. A second job will pay off a lot of debt or buy a lot of supplies.
  • Do odd jobs. Can you sew, tutor, mow lawns, bake, babysit, or do "handyman" jobs? Post or handout fliers around your community. If you have a pick-up truck or van, you can rent it & yourself out for a lot of odd jobs involving hauling.
  • Collect money owed to you. If you loaned money to a friend or relative, it is time to collect. Asking a friend or family member to pay back money you've lent them is uncomfortable, and may lead to some icy Sunday dinners at Grandma's, but it is your money after all. And you need it.
  • Cancel your subscriptions. Most newspapers and magazines will refund the unused portion of your subscription when you cancel. It might not be much, but every little bit helps.
  • Hold a yard or garage sale. Get rid of your junk and un-clutter your life while making a few bucks. If you live in an apartment, maybe there is a nearby flea market you can sale your stuff at? Or ask a friend if you can hold the yard sale at their place.
  • Sell your stuff online. Half.com is a great place to sell your books, DVDs and CDs. I have had much success selling my stuff there. Of course, eBay is also a great place to sell your stuff.
  • Sell big-ticket items in your local classified ads. This is a great way to sell individual items such as ATVs, exercise equipment, furniture, electronics, and so forth.
  •  Rent out a room. If you have a spare bedroom, consider renting it out. If you rent an apartment, consider taking a roommate. Be careful who you are renting to, of course, checking references and so forth. And be sure to use a written contract!

Remember: The single most important thing you can do to survive any future chaos is to start taking responsibility for your own life now.

See Also:

18 Easy Ways to Save Money

Top Ten Ways to Save Big Money

 Prepper's Guide to Junk Silver

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