Saturday, April 21, 2007

10 Steps to Financial Preparedness for Any Situation

It's been a busy couple of weeks. Besides the widely publicized shootings which have affected a great number of people, a friend's young husband died unexpectedly while he happened to be traveling out of the country and another friend lost his job when his company went out of business without so much as a hint of warning to the employees about what was about to take place. In all of these situations, good financial preparedness would have made a huge difference. While it wouldn't have helped with the emotional damage, being financially prepared would have alleviated some of the stress that comes with facing a disaster. Here's a quick ten tips for being financially prepared for anything:

  1. Always have a hundred dollars in your wallet. This gives you a small bit of security and allows you to handle any minor emergency (low on gas, an unexpected business lunch, etc.) without batting an eye.
  2. Stop using credit cards IMMEDIATELY and pay off your consumer debts NOW. This may take a few years depending on the size of your debt but it is imperative (not to mention a huge psychological boost) when you don't have a stack of bills to pay each month along with ever-increasing debt.
  3. Have an emergency fund. It may look something like this: $500 stashed in various places in your car, $10,000 stashed in your home (in fire proof safes), and $100,000 in various banks. Absolutely no one should know about your emergency fund as this makes you a target. Find a way to provide this info to your significant other in the event of your demise and not a moment before.
  4. Pay off your larger debts such as car, home, vacation home, etc., and don't be in a hurry to move up to "bigger and better" as soon as you pay off these debts. Stay where you are and drive your paid off car for a while.
  5. Control your spending at all times. People usually get into debt with out-of-control spending. Aim to live on 60% of your income while saving and investing (and tithing and paying taxes as well) with the rest of your income.
  6. Check out your insurance coverages to make sure they are sufficient. Insurance for auto, home, life, disability, et al should be more than enough to protect you from financial ruin should life take an unexpected turn.
  7. Start a side business. This can be a part time or full time gig but the most important part is that it is yours and you have full control over what happens with it. A side business should require only a very small investment of funds to get started...the point is to make a little money, not dig yourself deeper into debt.
  8. Act as if a job loss, loss of a spouse, or natural disaster is imminent and prepare accordingly. Your home should be fully stocked (food, supplies) to the point that you could technically go six months to a year without having to go to the store if necessary. Make sure all of your important documents are where you can find them at a moments notice, prepare your will, gather all of your financial documents and organize them accordingly, etc.
  9. Pay attention to what is going on around you. If your company starts bouncing checks, that's one indicator that they are on weak financial footing. If your roommate has a psycho ex who never let a restraining order stand in his way before, take appropriate precautions. If you live in a hurricane prone area and the newscasters are warning everyone to evacuate, then evacuate! No amount of money can make up for not preparing adequately when all of the signs are pointing to what you need to do to survive a disaster and you don't do them.
  10. Enjoy what you have and enjoy what you are doing irregardless of what "everyone else" is doing. So what if "everyone else" buys a new car every other year, they are probably up to their eyeballs in debt. So what if everyone else in your office thinks they have a job for life and lives accordingly, you know better and have the good sense to plan ahead whether it turns out to be needed or not.

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