We talk a lot on this blog about storing food and water, and having a source of power and communication, etc. for when there is a natural disaster. These are all important, especially when the winter weather is severe and some people are stranded in their home without power. But there’s a different type of preparedness I’d like to address – that of being prepared financially.
Why is Financial Preparedness Important?
Being prepared financial is vital for all families, especially when the world is uncertain. While there may be a natural disaster or a collapse of the economy, statistically your family is much more likely to have some sort of personal or family emergency that requires money. Some of these potential money emergencies are job loss, medical emergency, expensive car repairs, and damage to your home.
How to Be More Secure Financially
First, take a look at how your family is doing currently. Do you have decent employment? Do you have a monthly budget and are you able to stick with it? Are you debt-free, except for perhaps your house? Are you saving any money? These questions are all relevant if you want a firm financial foundation.
First of all, take a look at your current savings. Do you have at least a $1,000 set aside for emergencies right now? This money can cover short term emergencies like car repairs, etc., but remember – a vacation or new clothes are not an emergency! If you don’t have $1,000 set aside and you can, put it aside now. If you can’t, that should be your first goal.
Next, take a look at your current spending habits. Do you know where your money goes? Many people have no idea why they have more month than money, but keeping track for a month or two will help you identify how your money is being spent. Once you know what you are currently doing, then plan a budget and stick to it. Remember what our parents or grandparents believed: Waste not, want not. That still applies to us today as we learn to control our spending
Also, if you have any debt at all (other than your house), now is the time to pay it off. It feels great to be debt-free, so paying it off as soon as possible. Interest on debts is not your friend. As a wise man said,
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. . . . Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.” — J. Reuben Clark, namesake of the Brigham Young University Law School
After those two, you should save to have a larger emergency fund — which is much easier to do once you don’t have debt and interest anymore. Experts recommend between 3-6 months of your living expenses be saved, which you could use in the event of a larger emergency like a job loss or illness.
These are the first steps to take to becoming more financially prepared.
- a starter emergency fund ($1,000)
- getting out of debt (except perhaps your house)
- savings of 3-6 months living expenses set aside
Once these are accomplished, you can work on a saving/investment/retirement strategy. But these three should always come before those items. See where you are at this point, and resolve to improve your financial standing.