What does that mean to you? If you live in one of these states--or are just looking far enough ahead to see your own state meandering in the same direction--it means several things. The most annoying would probably be potholes that don't get fixed. The most financially threatening could be many-fold--a dramatic increase in taxes (state income tax and property tax, maybe even sales tax), businesses and jobs high-tailing it out of your state, a decrease in services (cuts to state Medicaid programs, cuts to school budgets, cuts to state and local programs, etc), if you hold bonds they may end up not even being worth the paper they are written on, and more fees for everything (road tolls, cost of licenses and permits increasing). The worst thing, for those who have a state pension, could mean huge cuts to the monthly pension you receive (can you imagine being old, no longer working or really employable, and having the small pension you rely on cut in half??).
Several cities have already gone bankrupt or are on the verge of doing so, and the thought of entire states heading this direction is pretty scary. It becomes a no-win circle of doom when jobs leave, which means people can't pay their mortgage, which means foreclosures and a drop in home prices, which means less property tax and income tax, which means less money for government, which means government can't pay their workers...
So how can you prepare for impending financial doom compliments of your state? There are several things...
- Get out of debt ASAP and entirely (home, car, student loans, credit cards, etc).
- Diversify your financial holdings (the entirety of your savings, investments, and retirement pension shouldn't be in one monetary device--like a state pension and state bonds. If you currently have a state pension, fine, but you also need money in a 401k, mutual funds, Roth IRA, etc, Spread your money around so if one investment goes toes up, you won't lose everything).
- Diversify your income. This means you have multiple sources of income, in unrelated industries, so that if one source of income (your pay from being a teacher, for example) suddenly evaporates, you will still have other income coming in.
- Do for yourself as much as possible. The less you rely on the government, the better off you will be.
- Be prepared for sudden increases in taxes and fees. Your emergency fund should be fairly substantial in order to handle any sudden increases in property taxes, the cost to renew your driver's license, etc.
- Live lean. Having easily survived with only what I could carry on my back for a couple of years, I know that I can actually live quite comfortably with very little. I know several people, however, who couldn't even think of living with less than four vehicles (for two drivers in the household!), a five bedroom home full of crap--bought at full retail, and a huge salary. The more weighted down you are by your lifestyle, the more difficult it is to respond to major changes.