The most common reason given for not having preparations in place is lack of financial resources. Considering the recent economic downturn combined with the large amount on consumer debt held by the average American household prior to the economic downturn that is not a surprising response. For the past several decades Americans have burdened themselves with more and more debt. We have fallen prey to the “buy now, pay later” mentality. Each and every day we are inundated with marketing messages designed to make us feel like less of a person if we aren’t living in the right neighborhood, driving the right car or wearing the right watch, shoes, clothes or cologne. Carrying yesterday’s cell phone? How embarrassing. Technology is literally moving faster than we can pay for it. Buy the latest computer, cell phone or flat screen television and it is virtually obsolete in less than six months. If you financed that must have purchase, six months later you haven’t even paid off the interest, let alone making a dent in the principal balance itself!
Planned obsolescence or the replacement buy cycle is being designed into the products we buy today like never before in history. How long do you expect your flat screen television to last? Compare that to how long your grandfather expected his television to last. And there we are, buying it hook, line and sinker. We never quite get the old item paid off before we take the plunge and buy (finance) the new toy. We continue to dig ourselves deeper and deeper into debt until we reach a point where we are spending the bulk of our income merely servicing the debt on yesterday’s, now obsolete, purchases. Sound familiar?
And then one day it happens. While watching the news or chatting with our friends or co-workers the big picture just doesn’t make sense anymore and we realize how blind we have been and how easy it would be for the world as we know it to get turned upside down. You experience your survival epiphany. You are suddenly awake, aware, concerned and ready to start preparing. But you don’t have the money to buy the essentials we need to survive. So what can you do?
Well, if you are absolutely convinced that a world changing disaster or economic collapse is imminent then it’s hard to argue with a plan to whip out the credit card and immediately buy everything you need to survive. Don’t worry about the payments, after all, who will be around to collect on that debt? But on the off chance that everything is business as usual next week and you will have to pay up, then your first step towards preparing needs to be to get your finances under control.
Step 1. Discovery. Make two lists, one for income and one for expenses. Look at your bank statements and credit card statements for the past several months and determine, really determine where your money is going. As simple as it sounds, this step is the hardest step for most people. Very few people want to do the work and face the results of such a detailed discovery. This step can be especially hard when it includes a spouse or partner. Be prepared to face avoidance, denial, fear, frustration, anger or even depression. But you cannot skip this all important step. This step is the very foundation that your entire plan will be built on. There are only two ways to significantly improve your finances, make more or spend less. Finding out exactly where you are on the income verses expense scale is essential to creating an Action Plan.
Step 2. Create An Action Plan. Once you know where your money is going, create a realistic plan for making financial progress. Are you going to earn more or spend less? How about both? Can you skip the Mocha Frothy Latte on your way to work? Can you make your lunch at home and bring it with you instead of eating out? Could you do that just two days out of five? Do you really need 350 High Definition television channels or can you get by with 150? Can you work an extra shift, fill in for someone else or take those holiday hours no one else wants to work? How about a part-time job? Think small, start small. Try to earn a few extra dollars here and cut a few dollars there. It all adds up and before you know it you have an extra $50, $100 or more to work with each month. Properly apply these found dollars and you will be amazed at how much progress you can make.
So what is the best way to apply these found dollars? Are you going to use these dollars to immediately fund your prepping or are you going to take a longer view and eliminate all consumer debt and free up even more cash flow so an even larger sum can be redirected towards putting preparations in place? If you decide to pursue a debt reduction plan, Suze Orman prefers you pay off the credit card with the highest interest rate first. Dave Ramsey teaches the “snowball” method where you pay off the debt with the smallest balance first then roll that monthly payment over to the debt with the next lowest balance “snowballing” your way into making large monthly payment towards the targeted debt. Both of them agree that you cannot borrow your way out of debt. You must either make more or spend less. An essential step in creating a plan will involve researching different strategies and philosophies to determine which method fits you best.
Step 3. Put Your Plan Into Action. Creating a plan is great, actually putting that plan into action is the only way to see results. Old habits are hard to break. Be diligent but patient. You are going to stumble but stick with it. Accessing tools like direct deposit and auto draft might be a way to force yourself to remain disciplined. Set aside specific days during the month when you are going to sit down and make payments, shift funds or whatever your plan calls for. Make this a routine, a planned event and it will become a new habit.
Step 4. Pay Attention. Because old habits are hard to break, you have to regularly revisit Step 1 to make sure your Action Plan stays on track. Many banks, credit unions and credit card companies offer free tracking tools to help you organize your expenditures into categories and generate reports that help you quickly see where you are spending your money. Some people accomplish the same goal with a small notepad they keep in their pocket and write down everything they buy and how much that item costs. Here again, find a method that works best for you.
Step 5. Treat Yourself. Once your Action Plan is in place and you have diligently followed the plan for several months, give yourself a small treat. Skip the debt reduction plan for one month and make only the minimum payment due for that month. Take the extra money you have been channeling towards debt reduction and buy that survival knife or high tech flashlight you’ve been drooling over, then get back to the plan.
Step 6. Be Wary of Windfalls. Are you expecting an Income Tax Refund or other periodic windfall? Plan carefully in advance on how you are going to handle this windfall. Having a large amount of non-recurring cash can make you feel rich. A few unplanned purchases and it can disappear quickly. In some cases, it can even lull you into buying an item on credit in advance of receiving the windfall with the intention of paying off this debt with the windfall then spending all of the windfall on something else and having the debt leftover. Remember, you can only spend money once, even windfall money.
Step 7. Review and Tweak. Once you have an Action Plan in place and follow it for a period of time you will have to regularly review and change that plan to accommodate the progress you are making and life changes that come up along the way. The process never stops. Businesses review their Year End Financial Statements and create new Budget Projections each year, you should too.
Insider Tip: The Internet can be a valuable resource. There are numerous blogs pertaining to personal finances and debt reduction. Yahoo Finance, MSN Money, AOL and other popular sites regularly publish articles pertaining to personal finance. Your public library has dozens of books on the topic as well. Personal Financial Coaches are becoming more popular and easier to find, some are even faith based and connected with your local church and offer their services for free.
Whether you want to buy more non-perishable food or buy that rural land up in the mountains, you need cash flow to turn that dream into a reality. Make taking care of your personal finances your first step towards your survival readiness.
Preparing to Prepare: a Financial Primer, by Just Scott
