Disaster Preparedness: Financial Crisis Although natural disasters like hurricanes, tornadoes, and earthquakes get a lot of airtime on the news because of their dramatic images and sometimes-high injury tolls, they do not affect nearly as many people as economic crises. This type of national and international disaster is usually slow in coming and often not detectable or preventable. And just like a natural disaster, it is not the fault of ordinary citizens. In fact, these cycles of depression and growth, known as “boom and bust,” are typical of a capitalist economy. The current economic crisis that has put thousands out of employment and which as affected multiple aspects of the economy, including parts like the housing sector and food prices, is an excellent example of this. In the years before the recession was officially declared, it was not obvious that the U.S. was headed towards a depression. No one panicked or called for action to be taken--that’s because these recessions are difficult to detect and even harder to prevent and repair. Federal and state governments cannot solve all the problems a financial crisis poses, and so it is up to ordinary citizens to solve their own financial woes. The key to this is economic independence, which can be achieved through a number of steps: first, get out of and stay out of debt, second, budget finances carefully, and finally, build a reserve of both cash and other physical resources. Many people recognize the need for financial independence, but as long as their job is still paying or their credit card bill is still reasonable, they try not to think about it. The truth is, however, the time to think about independence is when things are going well. It’s never going to be easier to get out of debt than when someone has a steady income and no excessive medical or other costs. Don’t wait until a natural disaster really does strike, or a medical emergency causes huge hospital and pharmaceutical bills. Think about finance now, not when the company starts laying people off or when salaries are cut. This way, people can go about financial independence in a calm, efficient manner, instead of scrambling to make ends meet when the gravy train finally stops. The first of the financial independence rules, getting and staying out of debt, can either be the easiest or most difficult part of the system; the difficulty depends, of course, on how much debt has been acquired by the time someone decides to finally get out of it. A variety of programs, websites, and businesses have dedicated their time and attention to getting people out of debt, so it is easy enough to find someone who is willing to work with even the worst cases. If someone wants to find a way to get out of debt themselves, however, they can follow a few steps to work their way out of the hole. First, people need to stop avoiding thinking about their finances. Sometimes, the hardest part about fixing debt is just facing the problem. In order to fix it, people need to know how much debt they are in, and how much time they have to repay it all. Once they do this, they can start tracking their finances to see where all their money goes. Each step to getting out of debt builds on the previous one: first recognize the problem and figure out where it’s coming from. Next, realize that spending just $10 a day really does add up, and stop spending. For some, this is the most difficult part of debt management; in order to become financially independent, people have to face the hard truth. They have to cut back on luxuries and start focusing on just what they need. Once someone is out of debt (or if they weren’t in it to begin with), they cannot slack off. Debt is much easier to fall into than to get out of, so be constantly aware of where the money is headed. Track monthly spending, and make sure to never exceed income, except in cases of emergency. If all this sounds too complicated, don’t worry; there is an easier way to be financially independent. In short, follow the rule of MILO (More In Less Out): make certain that income does not exceed expenses. It’s actually very simple; it just isn’t easy. The second part of financial independence is actually related to staying out of debt: budgeting finances carefully. With this step, people can not only stay out of debt, but also
slowly build income and savings against any sort of personal or national disaster. Budgeting can be complex, but again, there are a myriad of sources that want to help people manage their money effectively. In general, the first step to budgeting is to list and categorize expenses. Put expenses into categories like housing, transportation, education, entertainment, communication, and any other groups that might be relevant. Record how much money is spent each month in each category, and then add everything up and compare it to how much money is in each paycheck every month. If expenses are less than income, then write down the current budget--it’s obviously working. If, however, the expenses are greater than the income (like 43% of all American households), then it’s time to start cutting back. Separate the wants from the needs in the budget; wants are things like luxury cars, 500 channels, lavish vacations, and other entertainment. Needs are those things which adequately satisfy requirements like shelter, food, and clothing. A 5,000 sq. foot home with an indoor pool is not a “need” for a family of two or three. It may satisfy the need of shelter, but a small, modest home with a few luxuries would do the job just as well and with less debt and worry. Try cutting back those things which could be considered “wants,” like eating out every day or going to the movies a few times a weeks. Start using coupons when possible, and stop worrying about “keeping up with the Joneses.” Pride in an economy like this will only throw people into even deeper economic depression. If, at the end of the next month, expenses no longer exceed income, write down everything that was cut back. That plan will work. If expenses are still too high, try again and cut back more until everything starts balancing out. Each step to financial independence builds on the last one. Someone can’t start budgeting when their budget is overcome with debt, and they cannot start building up a reserve of cash and supplies when they are still trying to figure out how to make their income exceed their expenses. Authorities counsel people to begin with at least $1000 worth of savings, and to build slowly from there, especially during an economic boom. This will make times of economic depression much less painful and dangerous than they otherwise could have been. People can still find ways to save during a recession, however, by being frugal with their savings and cautious with their spending. Don’t buy things that aren’t a need, except for every once in a while, maybe as a reward. People don’t have to live like paupers to make ends meet all the time, but they should be careful because there is no guarantee they’ll be able to get out of debt during a recession. Besides just having a reserve of cash, also consider stocking up on food, water, and other necessities. Having food storage handy means that even if someone gets laid off, they will still be able to eat and survive as they search for a new job. Look for at least two weeks’ worth of nonperishable food to stock, as well as at least that much water, just in case the water in the house gets turned off when someone can’t pay the bills. Consider investing in battery-powered sources of light in case the electricity bill has to be sacrificed for other necessities. Some even find it a good idea to have alternate types of shelter when they are planning for the worst. While this may sound paranoid, there are many who have lost jobs and even homes, and benefit greatly from having this sort of backup plan. Store like The Ready Store provide all kinds of emergency preparedness necessities, and it’s a good idea to purchase these in times of prosperity, since there will likely not be a chance to do so once economic hardship hits. Finally, once all finances have been squared away and people are prepared with a reserve of supplies and cash, the last thing they have to do to remain financially independent is to remain constantly aware of their spending. Finances take time and effort to resolve; they will not just solve themselves, no matter how many automatic bill pay services people sign up for. People must take responsibility for their own finances if they want to survive the current--and future--economic crises.