20 Things You Can Do to Weather the Next Big Financial Crisis
Here are 20 ideas on preparing for the next big financial crisis, which could be upon us in the next year or two. With the US economy struggling to recover, Europe in shambles and emerging markets also in decline as the world's central banks print money to bail out banks and try to revive economies, I hope I'm wrong, but it makes sense to prepare. These are in no particular order and you might want to act on these ideas even if everything ends up being okay:
Emergency Fund - If you haven't already done so, build that emergency fund (3 - 6 months of living expenses); keep it in cash in an FDIC insured bank account - remember that in times of crisis, money market funds can "break the buck" and you could lose your principal
Avoid the Stock Market - If you are in the stock market, sell now; if you aren't, stay out - the only reason the stock market is performing well this year is because of money printing and cheap credit - it's certainly not because of the economy
Use Caution When Investing in Bonds - If you have to invest in bonds, make sure they are US Treasury securities and the maturity is short - be prepared to pay the US government to hold your money for you, because what you earn won't keep up with inflation; you can buy direct at http://www.treasurydirect.gov/
Gold and Silver - Buy some physical gold and silver - I personally like the gold buffalo and silver eagle bullion coins produced by the US Mint, they are available from most coin dealers and you can easily follow the price on EBay; when you get them, put them in a bank safe deposit box - some are calling for gold to go up significantly in the next few years (but short-term, it will probably decline due to the temporarily strong dollar and panic selling)
Get/Keep Your Job - If you have a job, keep it and do the best work you can so you aren't the first one to be laid off. If you don't have a job, get one quick - if you need to, change careers and/or go back to school
Start a Side Business - Build a business (or two) on the side in your spare time that could become your primary activity in the event you lose your job (always have a Plan "B"); the best time to build it is when you don't have the pressure of having it make money. Build passive income.
Pay off Credit Cards - If you don't have the cash to pay off credit cards, then you can at least consolidate them - Prosper.com is a peer-to-peer lending site that allows you to borrow up to $35,000 at a fixed rate to be repaid over 3-5 years - the lenders are individuals just like you and me
Think Safety in Your IRA or 401(k) - Move everything to cash and wait patiently for the market to correct; you really can't afford to lose another 30% to 50%, can you?
Refinance Your Mortgage - If you haven't done so already, you should refinance your mortgage now
Make Sure You Have Good, Portable Life Insurance - What's the worst thing that could happen to you - you lose your job (and with it your employer-provided term life coverage), you get sick and then you die, leaving your family nothing; the easiest way to avoid that is to purchase a whole life or term life policy outside of the workplace with a highly rated insurance company; I prefer mutual life insurance companies like Northwestern Mutual Life, since they are run more for the benefit of policy holders (it is also a highly-rated company); also a whole life policy can supplement your retirement income by providing tax-free withdrawals from the cash surrender value via policy loans; follow this link to one of my past blog posts where I describe this strategy in detail
Monitor the Financial Health of Your Bank - I recently posted on this topic; as bank failures were heavy during the Great Recession, you need to watch the financial health of your bank carefully
Live Within Your Means - Make a household budget and live within it; make sure you don't spend more than you make - your largest monthly cost is probably housing, is there anything you can do to reduce it? rent? buy? move? Eating out and credit card charges are another place where you can easily cut household costs.
Transportation - Get rid of the old car that is costing you a lot of money to repair, especially if it is a gas guzzler, and buy a new, more fuel efficient or even electric car. Get a basic model without a lot of expensive, fancy features - a car is for transportation, after all. Pay cash if you can, but financing rates are pretty low if you have good credit. Gas prices have nowhere to go but up.
Clear the Clutter - Go through your house one room at a time and I'll bet you have a lot of new, unopened stuff (toys, household goods, gifts that were received or never given, etc.); sell it on EBay and get some cash for it! Your house will look a lot cleaner and you'll have some extra money that you can use to pay off credit cards or put in your emergency fund.
Plant a Garden - Homegrown food is organic, healthy and cheaper than buying from the store; it's also good to get outside and get some fresh air and exercise
Insurance - check your car insurance to see if you can get a better deal with another company; consider getting an umbrella liability policy to protect you from a lawsuit in excess of your auto or home coverage, especially if you have teenage drivers in the house or if you own rental property
Read Motivational Books - I like the Rich Dad, Poor Dad series myself, but there are lots of others; the best defense is a strong offense - look for investment and business opportunities when the markets are in turmoil and everyone is running for the hills
Coffee - I love my coffee; I also love my cheap drip coffeemaker, instead of the the expensive Keurig with the K-cups - the K-cups cost a fortune compared to a bag of ground coffee; if you have to have Starbuck's, just get a cup of coffee and skip the fancy coffee drinks
Charity - Instead of giving cash to charity, donate lightly used items so you can get a tax deduction or better yet, volunteer your time to your favorite cause - it is much more valuable and you will feel better for it; if you have kids do something that directly impacts them like working in the classroom or volunteering for their sports
Sense of Humor - No matter how tough things get, keep your sense of humor
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