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Tuesday, February 9, 2010

Preps: No Money

As we've stated before, in our view, Emergency Preparedness needs to focus more on limiting negative impacts to disasters than on preparing for specific events (earthquake, hurricane, etc.).  We discussed that philosophy and those Twelve Impacts in an earlier post.  You can see all of the items in the series to this point by clicking the 12 Impacts label category.

We're going to drill down into one of the twelve impacts:  No Money.  

Money gives us options.  The more money we have readily available, the more options we have in our lives.  What happens when our access to money no longer exists?

For instance, it can mean you are unable to access funds held in depository institutions or the inability to access of credit lines and credit cards. This includes, “Banking Holidays”, bank failures and other similar events.

It also includes being “broke” – because of job loss, law suits, medical bills or other reasons, you have suddenly found yourself with no money whatsoever with which to buy food, shelter, fuel, water, etc.

The impact of no money can have its own "trickle down" effect on your life -
  • Inability to purchase consumables - Such as food, water, gasoline, clothing, cleaning/hygiene goods, etc. The inability to gain access to these types of items can cause a “cascade failure” – such as, you can’t get cash or credit, so you can’t get gasoline, so you are unable to get to your job. Or you can’t buy soap for proper hygiene, so you get dysentery.
  • Inability to purchase utilities - Such as electrical power, natural gas, heating fuel, etc. Your home can become little more than shelter from the elements.
  • The inability to purchase shelter - With no money, you may be unable to pay rent, your mortgage or for day-to-day living at motels.
  • The inability to pay other monthly bills for things such as insurance, car payments, credit card payments, etc. In some instances, this can result in the forfeiture of assets (car repossessions) or loss of benefits (health, auto and life insurance).
What can you do to limit the negative impact on your life?

When times are good, most people assume that their paycheck will continue forever, or their other income streams will never be negatively impacted.  The best thing you can do is to assume that at some time, you'll be without an income stream.  Assume you will have "fallow times" in the future.  Take advantage of "times a-plenty" to prepare for these times -

Save cash.  There is an old rule-of-thumb that after losing a job, for every $10,000 in annual income you earn, it will take you 1 month to find another job.  For instance, if you make $50,000 a year, expect it to take at least 5 months to find another comparable job after a layoff.  Longer if you were fired "for cause".

In an economy such as the one we're in now, you should AT LEAST double those numbers.

Look at your monthly expenses, and determine how much net cash you need each month to pay the bills.  Multiply that by the number of months you can expect your income to be impacted.

One thing about including Unemployment Insurance (UI) in your projected cash-flow projections during a layoff:  At least in California, if you have a part-time home-based business, you are not eligible for UI, even though your employer at your "regular" job paid into the UI program.  At the very best, and after lots of fighting, that income stream will be deducted from your UI payments.

Cash On Hand.  What if the reason for your cash-flow problem is a 'bank holiday' or some other such government-mandated restriction?  What if some sort of natural or man-made disaster happens and you cannot gain access to ATMs, debit or credit cards?  You should examine your monthly cash expenses - food, gas, clothing, etc - and have at least 3 months worth of cash securely stored at your home.

Purchase one of the small fire-proof safes (about $30) and put it in a well-hidden spot in your home.  Be sure you and your other family members understand that this "stash" is ONLY accessed in an emergency.  Pizza on Friday's is not an emergency!  If you can't trust your family members not to squander the funds (which is a whole other issue), be the "responsible party" and do it yourself.

Purchase Consumables.  What better way to ride out a financial storm than by having most of your needs already paid for?  Food, water, fuel, medical supplies and equipment, medications, firearms, ammunition, tools. 

Along these same lines, make or produce as much of your consumables as is possible.  Grow veggies, raise chickens, raise meat animals, fish, knit blankets and sweaters, sew your own clothes, learn how to forage wild foods, can or otherwise preserve foods, etc.  Bottom line:  Reduce your dependence on retail stores for your survival.

Reduce Debt.  Debt is a killer.  It makes you beholden to someone else and limits your personal choices and freedom.  Get out from under it so you can spend your money as you want, not as you must.

Investments and Precious Metals.  Once you have your emergency cash fund, cash-on-hand and consumables addressed, NOW is the time to start looking further into the future.

Things like 401(k) plans have historically been a decent place to put your retirement funds, as long as you had the ability to quickly re-direct investments.  Many people were badly hurt financially when their retirement plans were locked into one or two investment choices, and those choices plummeted in value. 

Regardless of the matching amount contributed by your employer, if you don't have the ability to direct your investments - with one of those investments being cash - don't invest THERE.  Find another personally directed investment vehicle.

Precious metals (PM) are also another option to consider.  Personally, I view PM as an inflationary hedge.  Since I see inflation skyrocketing in the very near future, I'm personally increasing my holdings in PM.  You may or may not see things the same way.  YOU need to get educated and make the best investment decisions for YOUR life.

Also consider that there has been increasing talk in the halls of the US government about nationalizing retirement accounts, as was recently done in Argentina.  The government needs cash-flow, so the funds are seized and you're given a guaranteed monthly payment for life.  Considering the government's past performance with Social Security, this doesn't give me the "warm and fuzzies".

Multiple Streams of Income.   This is a lesson I wish I had learned earlier in life.  When you hang your hat on a big, fat paycheck and it goes away, life sucks for a bit!  Identify the skills you possess and consider ways to make money - above or below "the table" - so that you're not solely dependent on your regular paycheck.

Can you make crafts that can be sold on ebay?  Can you work on cars for some extra cash?  Do you have skills that could be taught at a community college or adult education site?  Find a need and fill it!

Barter and Non-retail.  Sites like Craigslist give you the opportunity to buy, sell and barter goods and services without government intervention - yeah, taxation.  You can find virtually anything you need on Craigslist (outside of guns and ammo), as long as you have a little patience.

Accept The Challenge

Many people are learning the hard way how the sudden loss of income can negatively affect their lives.  Anyone who reads the news has got to know things will be getting worse before they get better.  Having a sound, fiscally conservative financial plan is more important now than ever.

It is fine to assume a rosy financial future, but you should plan for the exact opposite.  Make a budget so you understand your expenses.  Cut out extraneous expenses.  Save your money.  Invest in YOUR future so you are able to call your own shots in life.

Copyright 2009 Bison Risk Management Associates. All rights reserved. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.


Anonymous said...

I figure it gets that bad, I can go back to robbing liquor stores and boosting Mexicans on payday. I got one of my wife's old stockings around here somewhere.

MikeH. said...

I think it important to mention that should retirement accounts be nationalized, having PMs in your "physical control" is far better than having it in your "portfolio".

Gold in 1 gram bars and / or silver in 1/2 and 1 oz. bars and rounds are easy to hide and perfect units to have on hand should the dollar fail.

Chief Instructor said...

Hermit, yeah, there's always the "Desperado" route!

MikeH, great point. Having physical PMs is a MUST. It's interesting to see the disconnect between spot prices and physical PM prices. Having small denomination gold makes it quite portable, but the premium is USUALLY a killer! In checking ebay right now, it's not too bad...

theotherryan said...

I preach cash also. In almost every realistic worst case scenario cash is still useful, nay cash is necessary.

How much cash to have on hand is an interesting discussion. Personally these days I keep about a months worth of 'cash expenses' on hand in mixed bills. That is about the amount that I am comfortable with the potential loss (via break in or fire, etc) of at this time. Down the road as our savings and family grow and we own a home (and thus could be more creative with storage) I can see increasing it.

We have in the past dipped into our reserves for convenience but always religiously pay it back. Taking $20 out because you forgot to get cash for Saturday nights pizza order is fine, IF you go to the ATM Monday and get $20 then put it back into the reserves.

We keep the 3 months total income fund in the bank. Precious metals are purchased and physically stored by us. I look at them as insurance also. Sort of the very conservative portion of our overall financial plan.