Sunday, September 8, 2019

Financial Preparedness: Get Back to Basics

During times of great change and chaos, one of the safest and most effective strategies is to simply "get back to basics" - to do all those things you know you should be doing but which are so easy to get away from during the good times. But, when it comes to finances, what exactly do I mean by the basics? And how do we get back to them?

Get back to the basics of personal finance. Make sure you are spending less than you earn. Avoid taking own any new debt - don't use credit cards, payday loans or installment payment plans of any type. Pay cash or make do without. Pay off credit cards, auto loans, and other installment loans. Get on a budget or spending plan and stick to it. Avoid impulse purchases. Scale back your lifestyle sharply. Find the best bargains by using shopping lists, clipping coupons and doing comparison shopping. Start an emergency fund. These are the basics of personal finance, and you probably already know you should be doing these things. But are you? 

Eliminate debt and build savings. I don't know when exactly, but I do know that at some point we will be  facing difficult economic times once again.. It will be especially difficult for the folks who are living paycheck to paycheck, in debt up to their eyeballs and with little or no savings. Debt – whether personal, business or government – is bad. It creates stress, entraps us in jobs we hate and makes us 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 denying yourself luxury items. It may mean taking bag lunches to work. It may mean selling your car to get out of the loan. It may mean having a major yard sale to raise some money. It may even mean taking on a second job. It will take sacrifice to eliminate debt in your life, but the benefits will be more than worth it.

Debt Busting Idea #1 - Making payments on your vehicle?  Sell it and buy a more affordable vehicle with cash. Downsizing your vehicle to get out from under the loan is an idea Dave Ramsey often suggests to his listeners. If you can't get enough for your vehicle to pay off the entire loan, you will need to raise some extra cash using other ideas from this article. 

Debt Busting Idea #2 - If you own any "adult toys" such as ATVs, boats, sports cars, RVs, pool tables, dune buggies, hot tubs, motorcycles, or other big ticket items that you use only for recreation and entertainment, consider selling them and dedicating the proceeds to debt repayment. Same goes for any home gyms and exercise equipment that you don't really use. Depending on what you have to sell, you may be able to raise anywhere from a few hundred dollars to several thousand dollars. That's a lot of debt you can pay off.

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.

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

Another reason to pay off debt now is that debt can shackle you to your current job and circumstances, when what is really needed 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.

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 top interest. Safety and liquidity are your goals 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 savings for long-range goals such as the purchase of a car, a new home, your children's education, or your 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 and common sense, to remain vigilant and to take responsibility for ensuring your own future.

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 (DVD checked out from the 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 and Blu-Ray, music CDs and even board games that you can check out. Many libraries also have story times for young children and host lectures for adults.

Local parks are another source of free entertainment and exercise opportunities. Playground equipment, obstacle courses, walking & jogging trails, tennis courts, basketball courts, picnic tables, and plenty of open spaces can be found at most parks. A local park near me even has fishing ponds that the county keeps well-stocked. They also host many events, such as an annual gem & mineral show and a summer concert series, that can be attended for free.

Give up the vacation away from home. 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.

Eating out should be a rare treat, not a lifestyle. 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 just five dollars a day for lunch, that is over $1,200 a year. If you are a two-income family with both of you eating out at lunch, this doubles to over $2,400 a year. Family dinners out are even more expensive. This is one area of the budget where huge savings are possible for most folks. 

Small purchases equals 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 inexpensive afternoon snack adds up to almost $450.

We tend to dismiss small purchases as being insignificant - its only a couple of bucks - but when we make a lot of small purchases, those couple of bucks add up to hundreds, if not thousands, of dollars over time. 

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.  so be sure to consult a tax professional. Super-insulate your house. Consider installing energy efficient windows and heating with a modern wood stove. These ideas will cost you money up front, but will likely save you money over the long run. Also, certain energy-efficient upgrades may be tax deductible, so be sure to consult your tax professional.

Reduce the amount of fuel you use. Make sure your vehicle’s tires are properly inflated and the engine is well-maintained (tune-ups, oil changes, a clean air filter, etc.) to maximize mileage. Drive slower and less aggressively. 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 (but not if you would have to make payments).

Energy efficiency for your home and car will become especially important if and when the progressives come back into power. Their obsession with "climate change" and their need to pay for all of their give-away programs, guarantees much higher energy and gasoline taxes in the future. 

Stocking up on food and other supplies is a great hedge against inflation. Canned and dry foods can last 2 -5 years or more. Wood for your fireplace or wood-burning stove can be stacked up in your backyard. If you are into gardening, and you should be, composted cow manure, bone meal, hummus and other soil amendments can be used to improve your soil for future use. Most seeds have a shelf-life of 3 to 5 years. Extra shoes, clothes, toothbrushes, razors, soap, paper towels, tires and many other useful items can be stored almost indefinitely.

Needed and useful items that you stock up on (for future use or bartering) are very much a form of savings. With the debasing of the US dollar, and many other currencies worldwide, such stockpiles may be a good place to put some of your savings.

Take personal security seriously. We should expect crime to rise dramatically during the difficult times ahead. Identity theft, fraud, con games, check kiting schemes, burglary, car theft, armed robbery and even kidnapping for ransom are very likely to increase during the next economic downturn.. People who stand out as being "rich" will be very tempting targets, but even the poor can be victims. Don't flaunt your wealth. Be aware of your surroundings. Be vigilant about your protecting your financial information and identity. If you are wealthy, a gated community with private security may become a necessity. If you live in a regular neighborhood, start a community watch program. Teach your kids to be very wary of strangers and aware of their surroundings at all times. Avoid the seedier parts of town whenever possible. Try not to shop or run errands alone, especially at night.

This article only scratches the surface of financial preparedness. You may also be interested in some of the other articles I've written on financial preparedness:

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