28 September 2011

Prep30: Plan out your financial preparedness

Throughout the Prep30 series, we've focused mainly on accumulating skills and supplies directly related to emergency preparedness. Another area to work on preparedness is in your finances. You won't get all of these changes done in a half hour, but you can work out a plan for your next steps with these goals in mind:
  1. Always have cash on hand: Emergencies can and will happen when you least expect it. In some cases, there may be a run on the ATMs in your area. If there's a widespread power outage, the machines won't be working. Either way, it's better to keep some cash available in case you need it. Consider carrying at least $50 in various denominations (e.g., ten $1's, two $5's, one $10, and one $20). You may want to also keep some cash in your evac kit or your car kit, including some change in the latter.

  2. Maintain an immediate emergency fund: Build up an emergency fund of money to cover emergencies that arise. Dave Ramsey recommends starting with a $1,000 emergency fund; that's a good goal, but even if you have half that, it's a help. Just remember to save this for true emergencies. Saving for big purchases, vacations, etc. should be done in a different account.

  3. Keep your emergency fund liquid: It's important to be able to readily access your emergency fund money when you need it, and without paying a penalty or fees to do so. Keeping this money in a simple savings account works well enough to handle personal emergencies like unscheduled auto repairs or unplanned medical bills. However, for disaster preparedness, it's probably a better idea to have cash saved somewhere safe in or around your house. Just remember to choose wisely if you're storing money (or valuables) around your home.

  4. Eliminate (or drastically reduce) your debt: Every dollar of debt you maintain is another link in the financial shackles that bind your freedom. Perhaps you need to incur some debt for a house, a car, or your education, but with some patience (which is in short supply nowadays), you can even save up for these things. Do whatever you need to do to get out of all other debt. You can start with these six tips.

  5. Build a long-term emergency fund: After getting your immediate emergency fund and debt squared away, you'll want to build up your emergency fund until you could live off it for several months. How many months is up to you, but I recommend at least 6 to 9 months of your current expenses. That may be a tall order, but bear in mind that it can be tough to find a job. Plus, inflation could increase so that you 9 months of money would really cover only about 6 months. Note: this will be a considerably larger sum of money, so you'll probably want to keep it in a bank, but still liquid, e.g., in a money market account.

  6. Not all your "savings" should be in money: As a part of your overall preparedness, some of your "savings" should be in the supplies, skills, and gear that is discussed in the rest of the Prep30 series and beyond. The investments you make in your preparedness supplies and your own skills may well be more valuable than any bank account.

  7. Have insurance coverage: An earlier Prep30 post discussed insurance for your home and possessions. However, don't forget automobile, health, and life insurance too, since they will help you be better prepared, financially.

  8. Learn more about handling your finances: Read up on getting out of debt and increasing your financial health. As I've mentioned before, I highly recommend Dave Ramsey's books. Another excellent personal finance author is David Bach. Those pursuing a simpler, more self-reliant life would also do well to read Your Money or Your Life by Vicki Robin, Joe Dominguez, and Monique Tilford.

2 comments:

  1. Absolutely love this article. Well done!

    V6

    ReplyDelete
  2. Thanks "V6"! Looking forward to your site when it launches!

    ReplyDelete