Sunday, September 2, 2018

Foundational Advice: Eliminate Debt and Build Savings


Here is a bit of foundational advice for preppers and everyone else: Eliminate debt and build savings.  

We've all heard it before, but how many of us actually follow that advice? My gut feeling on the matter is that most folks, preppers or not, don't. It is difficult, takes time, and requires a certain amount of sacrifice. In other words, it isn't fun.
 
Yet, bad economic times are a part of most collapse scenarios that worry most preppers. And even if a full collapse never happens, can be certain of economic downturns and recessions in the future. Bad economic times are especially difficult for folks who live paycheck to paycheck (which is most of the middle class in America today),  are in debt up to their eyeballs, and have little or no savings.  Debt – whether personal, business or government – is bad for many reasons (I'll talk about those reasons below). So, my personal advice to you (and to me) is to make paying of debt and building your savings a major part of your prepper activities.

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 are the goals for your emergency savings, not growth.
Pro Tip: Check out Dave Ramsey's Baby Steps and read his the book Dave Ramsey's Complete Guide to Money for more on getting out of debt.
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." (NKJV)
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.

Additionally, 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.

Finally, debtor's prisons are a thing of the past, but depending on what a future collapse looks like, they could return in the future. This is partially true if the future collapse includes a true police-state phase in which the Constitution and Bill of Rights are suspended or done away with completely. 
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This article is part of an ongoing Prepper Financial Series. Here are the other articles in that series:

*** Quick Financial Tips for Preppers (and Everyone Else) 
*** How To Raise Money For Your Prepping Activities
*** Precious Metals and the Prepper

Future articles in the Prepper Financial Series will come out on an almost weekly basis.
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