Here’s an article I wrote for a newsletter I write for. Given the tragic messages coming out of the southern states, in the wake of hurricane Katrina, I thought I’d share it with you gentle readers, as well.
Just take a look at the headlines from any major newspaper and you’ll realize that the world is an ever changing place. Nothing is completely secure, and disaster can strike us at a moment’s notice, with little to no warning. When you take natural and economic disasters as major components in financial uncertainty, the picture starts to feel overwhelming. If we are prepared, however, we can survive and prosper during such uncertain time.
Odds are, you neighbor spends more than he or she makes. Maybe you do, too. The same could be said of local and national governments. Debt and mortgages are the norm. The result of spending money is inflation. If we understand the dangers involved, though, we don’t need to be eaten alive. We just need to make some simple decisions regarding our assets.
Inflation leads to one thing, a decrease in the value of your money. Historical and contemporary trends have shown that national and international crisis weaken personal pocketbooks and shatter national economies. Our economic future depends on the value of the U.S. dollar, which is recurrently at risk for collapse.
In like manner, individual retirement accounts may be robbed. Retirement annuities that may have looked promising twenty years ago may have had their strength reduced as the value of the dollar decreases. While you may have felt at one time that it would be enough, with a decrease in buying power you may end up living at or below the poverty level. In short, inflation reduces spending power and diminishes the value of your assets. The only people who win in such situations are: big borrowers (like the government), big businesses, mortgage companies, and those who invest early to hedge against potential financial chaos.
Costly safety and other services in major cities, along with a preponderance of poor and dissatisfied inhabitants, may become the first victims of inflation and economic disruption. The already dangerous climate in our cities is worsening. Crime pays because so few criminals go to jail. Welfare roles swell because there is little economic incentive to work; slums expand, property values plummet, and jobs become scarce.
Even if the odds favor good times, it can be useful to create a financial safety net. If you have reasonable self-sufficiency you can survive, even if various resource distribution methods suffer set backs for a while.
Avoid Unnecessary Debt
Financial over-extension creates risk, and accompanying fear. Borrow only to purchase income-producing investments, or those that inflate in overall value. Pay off your credit card and mortgage debt as fast as you can. When buying a home or investment properties, either pay in immediate cash, or invest as little cash as possible. By choose one of the two extremes, you avoid the interest of a mortgage, and leave your funds available for other good investments.
Spread Your Risk
Don’t put all of your investment “eggs” in “one basket.” If one investment loses money, the others can take up the slack. In other words, diversify your investment portfolio. You may lose money in one investment, but because the others remain more or less intact, your total assets are not affected as strongly.
Be Highly Self-Sufficient
Learn about food storage and plant gardens. Raise food animals like chickens or rabbits, if you can. Have a good generator, a fresh water supply, and other forms of back up heat and energy where possible. A good bicycle can be useful, as well. Learn practical skills such as home and auto repair.
Plan Your Future as if Social Security Didn’t Exist
Maintain some cash reserves for emergencies, but don’t keep all of it in a savings or checking account. Money-funds and treasury bills can earn better rates, are liquid, and safe.
Create a Crisis Supply
Have on hand enough usable food to last one year. Dehydrated food and extra water storage should be a top priority. This can “panic-proof” you by creating your supply before a crisis can strike. Food and water are vulnerable commodities. Weather conditions, oil supplies, transportation and worker demands, not to mention economic need, all contribute to the ability to obtain food. Remember, no one can raise the price of food you’ve already bought.
No amount of preparation will be perfect for all situations, but by taking a few common sense steps, and creating a safety net should hard times come, we can prosper when trials come our way. Such simple steps help us make real progress towards meeting our present goals, future prosperity, and giving us peace of mind.