Thursday, January 10, 2019

Financial Preparedness for What is to Come


We may be facing difficult economic times very soon. Or it may be a few years off. Either way, there will be another economic downturn. There always is. When it happens, it will be especially difficult for the folks who are living paycheck to paycheck (that's most of us), 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.

Financial preparedness requires 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 probably mean putting off major purchases, avoiding impulse purchases and denying yourself luxury items. It may mean taking bag lunches to work. It may mean selling your new car to get out of the loan, replacing it with an older model without payments. It may mean having a major yard sale to raise some money. It may even mean taking on a second job. It will take some 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 several companies that offer ratings on the soundness and safety of various financial institutions). Don’t worry about getting top interest. Safety and liquidity is your goal for your emergency savings, not growth.

Once your debt is paid off and you have accumulated some emergency savings, then you can then turn your attention to saving for long-range goals such as the purchase of a new car, a new home, or retirement. Use common sense, avoid overly-risky investments and 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 & common sense, to remain vigilant and to take responsibility for ensuring your own future.

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

Get back to the financial basics. Make sure you are spending less than you earn. Avoid taking on any new debt - don't use credit cards, payday loans or installment payment plans of any type. Pay cash or make do without. Build some emergency savings. Get on a budget or spending plan and stick to it. Avoid impulse purchases. Scale back your lifestyle sharply. Find the best bargains by doing comparison shopping, use shopping lists, clip coupons.

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. Besides, deflation may be in the future if things go a certain way. Or, even worse, a period where we experience both deflation (of major assets such as homes, land, vehicles because people simply can't afford them) and inflation (of food and everyday items that we must have at any cost) at the same time.

Debt can also 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.

Another reason is that debt can shackle you to your current job and circumstances, when what is really needed in bad times 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 be paying more in real terms because of all the added interest and penalties.


Taming the Family Budget, or How to Afford to Pay of Debt and Build Savings 

When I was a small child (the 1970s) the only telecommunications expense my family, most families, had was the telephone, and that was a land line, of course. TV programs were free over-the-air, and there was no Internet. Today, many families pay for a land line, multiple cell phones, special ringtones, cable or satellite TV subscriptions, extra movie channels, Internet connections, gaming and movie subscriptions (Netflix, Hulu, etc.), special apps for their $500 (or more) smart phones, even satellite radio subscriptions. For most families major savings can be found in this budget category.

Do you really need a smart phone? Do you really need the absolute latest (and most expensive) version of your smart phone? I have a regular cell phone myself, but it is the basic model that only cost me $19.99 (and I didn't have to commit to a plan). I can text and make phone calls on my cheap phone as easily 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.

We have allowed them to make us addicted to our smart phones and other electronic devices. Maybe its time to overcome our addictions and spend our money on getting ready for the future instead of funding those million-dollar bonuses of telecom executives. 

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. We may 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. 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 this year. 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. Consider replace old appliances with new, energy-efficient models. Super-insulate your house. Consider installing energy efficient windows. 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. 


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