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We live in a world where almost everything happens rapidly and often by remote. Books and movies are downloaded from the Internet for instant entertainment. We travel freely and quickly around the world. Things like automatic dishwashers and laundry machines aren’t even remarkable anymore. And everywhere we go, in person or online, we are enticed to spend money freely, without thought of tomorrow. Being a prepper, however, means that we are thinking ahead to what might happen tomorrow, or next month or year, and getting ready for those possibilities. How does that affect our financial strategies?

Colonel Jeff Cooper was a Marine officer and a great tactical thinker, and founder of the Gunsite Academy, which is still a premier firearms training institute. He developed the color code to teach tactical awareness. The colors of the code are white, yellow, orange, and red. In condition white, you are relaxed and unable to respond quickly. A good example would be someone walking down a busy street, looking at their iPhone with headphones in place. That person is a perfect target for a robbery. In condition yellow, you are paying attention to your surroundings and are prepared to respond if anything unusual occurs. Col. Cooper often pointed out that there is almost never a time when it is safe to drop from yellow to white, even in your own home. In condition orange, you have spotted a potential threat and are thinking of options to respond. Your response time will be much lower if something happens when you are in condition orange than condition yellow. For example, think abut walking down that same street in condition yellow when you see a group of young men approaching wearing gang colors. You move to orange, cross the street, and place your hand on your concealed weapon. Finally, in condition red, you are actually under attack. You have made the decision to fight back and are responding to the threat. Going from condition white straight to red is difficult and makes an effective response unlikely.

The color code is a good way to visualize the mindset necessary to be ready to respond to a physical threat. But how can it help us financially? Our society encourages us to live in a financial white condition, so we need to understand why we should be living in yellow and preparing for orange and red.

The financial world has changed substantially in the last 30 years. In the 1980s, interest rates on savings were 6-12 percent. There was a reason to keep money in the bank, simply because it made more money. Currently, interest rates are being maintained at very low rates by the Federal Reserve, so those savings accounts make around 0.01% to 0.06%. So, if you put $10,000 in the bank for a year in 1984 at 10%, you would have $11,000 at the end of the year. That’s a good payoff. If you put the same $10,000 away now for a year at 0.1% (rounding up, assuming you found a great rate), you would have $10,010 at the end of the year. That’s enough extra to buy dinner at a fast food restaurant for one person. It is much less incentive to save. Meanwhile, negative interest rates are now a reality in Japan, Switzerland, Sweden, and Europe. If you put 10,000 into two-year Swiss bonds, for example, you would lose approximately 1.2% a year ($120). That’s crazy! Surely people will pull out their cash and put it under their mattresses? Apparently not. But people certainly are saving less than they used to.

So if we plan to prepare financially by saving cash in the bank, we need to realize that is not going to be a good long-term strategy. Not only will we be losing to inflation, but with negative interest that cash will continue to lose value. Saving via the stock market is a topic for another article, but suffice to say that in a situation in which preparedness strategies will be necessary, the stock market will be in a downturn also.

If we want to get out of condition white financially, we need first to become aware of the current financial situation, both in our own homes and in the country as a whole. The federal debt, of course, is almost beyond understanding, as it approaches 20 trillion dollars. Federal debt was set up by Alexander Hamilton in the 1790s to pay the expenses of the Revolutionary War, but that debt was actually paid off over time. In fact, paying off the Federal debt was actually accomplished twice, in the 1830s when the initial Revolutionary War debt was paid off and then a second time after debt was again accrued in the Civil War and paid off by the end of the 1800s. After the depression of 1929, however, the U.S. began accruing debt that would never be paid. Financial experts estimate that when interest payments reach about 12% of gross domestic product, the government will default. If interest rates remain near zero, we are a long way from that default. But if interest rates rise, we will get close to default very quickly. Now we know why the Federal Reserve is keeping interest rates low. So let’s plan for that to continue!

One of the prime movers in both our national and our personal financial situations is spending. If we spend more than we make, we will be in debt. Nationally, we may not be able to influence the problem. However, personally, there are decisions we can make every day to put us in a condition of financial readiness. Let’s take a look at possible differences between a person in financial condition white and someone else in condition yellow.

Mr. White is a manager for a large company and makes $58,000 per year. He lives in the suburbs in a four bedroom, four bath home, which cost $285,000 with his wife and three children. They all have cell phones. He drives to work in his 2015 Escalade. He plans to get a new car next year. He always stops on his drive in at Starbucks, where he gets a Grande black and white latte and usually also a bite to eat. He eats lunch at one of the many restaurants around the office. Today at lunch, he was telling one of his coworkers about the trip to Florida he is planning for next month. His family can’t decide between Disney and Universal Studios, so they plan to stop at both. Mr. White is also interested in preparedness and often watches Doomsday Preppers with his wife on their very large bedroom TV, which gets all possible channels of cable and also wifi for $220 per month. The kids don’t like the show, so they watch TV in their own bedrooms. Mr. White has an AR and a couple of pistols, but he hasn’t put aside any food or other supplies because he just hasn’t got money to spare for that.

Mr. Yellow also works as a manager in the same company and makes the same $58,000 per year. He lives farther away from work than Mr. White, but he drives his 2012 pickup truck to the train station every morning and takes the train to work. Mr. Yellow and his wife live on a small farm, in a three bedroom, two bath home, which cost $185,000. Two of their three kids share a bedroom. Mr. Yellow brings coffee from home on the train and also uses the time to write a blog on self-sufficient living. Advertisers on the blog pay to promote products, adding an extra $200 per month to his income. Mr. Yellow also brings his own lunch, often composed of products from his garden and farm. He doesn’t have cable, but his family has a wifi Internet system, which is $50 per month and provides limited data. They have one TV in the living room, but they usually play board games or read instead of watching it. Only one of Mr. Yellow’s kids has his own phone, and he pays for it himself by mowing lawns for the neighbors. The Yellows are planning a camping trip to Yellowstone this year and will practice survival scenarios as they see the sights there. The Yellows have a year of freeze-dried and home-canned food stored, and everyone in the family over age seven is trained and able to use firearms and has equipment appropriate for their age.

I know what you are thinking. Not everyone wants to move to the country and quit spending money on expensive coffee. Your lifestyle changes don’t have to be that extreme to move to condition yellow. But do you really want to remain in financial ignorance? Probably not. Let’s look at some concrete and realistic steps to get out of white condition.

First, control your discretionary spending. If you eat out all the time, that’s a huge area of potential savings. If you are going to Florida to visit a theme park on vacation, pick one park and get the multi-day discount tickets. You don’t have to see everything at once. Evaluate any monthly recurring bills. Cutting or at least downsizing cable will help. Look at your phone bills. I had AT&T for years with unlimited data grandfathered. I finally decided to make a change when the bills hit $150 per month. Now I pay $45 per month for more data than I use, my phone cost $39 and the battery lasts all day. (It’s an android). Yes, I missed my iPhone for a while, but I got over it. Also, my service is just as good as it was on AT&T, but when I call the company they actually answer! Who knew?

Second, control your monthly spending that isn’t completely discretionary. For example, if you can live in a somewhat smaller house and save $200 per month on your mortgage, that will add up to $2400 per year or $24000 over 10 years. That’s tax free income, by the way. Even better, if you can live in a small house and pay off your mortgage, your lifestyle will improve dramatically. Calculate how much interest you are paying monthly and you will convince yourself. Check out your healthcare bills. Even if you have company insurance, you may not be using that vision plan, and if you are buying insurance in the “marketplace”, you certainly need to shop yearly.

Finally, get out of debt and stay out. If you are in debt, you can’t walk away from your job if things go bad. You can’t move easily to another area of the country. You don’t have a cushion in the case of illness or injury in the family. There are many resources to help with planning to reduce debt. Dave Ramsey and Crown Financial both offer courses that are helpful. The tips in the paragraphs above are the first step– cut spending.

Why do we want to be in financial condition yellow? If we are aware of our surroundings, we know that unexpected events may happen and we are ready for them. So if we lose our job to layoffs, have a family member with a serious illness, or just need a new air conditioner in our vehicle, we can respond quickly and without panic. In condition yellow, we are spending less than we are making. We have savings in cash to cover several months of living expenses, and we are prepared with food storage and supplies that can be used in a financial emergency, just like in any other emergency. We know that something may happen, and we are ready.

What happens in financial condition orange? Condition orange means that we have become aware of a potential threat. If you find out your company is in financial difficulty, you might move to condition orange. Cut all unnecessary spending and save every possible dime, check your food storage, and calculate how long you can go without an income to prepare for potential layoffs. If you have been living in yellow, you may be prepared to live for six months or a year even without further spending cuts. If you have been living in white, you may want to get your resume ready quickly.

And finally, what is condition red? If one of your children is severely injured in a car accident and you have to take time off work to be with the child in the hospital and then months of rehab, can you still pay your mortgage? We hope it won’t happen, but we live in yellow so that if a financial disaster happens, we can still remain ready. Another example of condition red is what may happen if the global financial markets become unstable. If you have not been following events in Venezuela, you should read up on the current problems there. Financial mismanagement has left the entire country short of food and basic supplies. Venezuelans are in condition red with no end in sight. Unfortunately, many of them went from condition white straight to red. Living in condition yellow, hopefully you would see the early signs of financial collapse and increase your stockpiles of food, spending cash savings that would shortly evaporate anyway with rampant inflation. Making the transition gradually from yellow to orange to red is far less painful than the jump from white to red.

So what about savings, in this era of negative interest rates and bank bail-ins (in which failing banks seize depositor’s money)? It is still helpful to have cash in the bank to cover expenses for a few months. However, saving more cash in the bank or cash instruments, like CDs or money market funds, is no longer a safe and effective investment. Gold and silver are relatively easy to store, but they are also somewhat risky as prices fluctuate and you may have to pay a premium to sell them. Stocks are always risky. As my mom, who lived through the Great Depression, used to say, “Never invest money in the stock market that you can’t afford to lose.” That’s still true today. Food is bulky to store and may have a limited shelf life, but it has certainly appreciated in value considerably in the last 30 years, if you have been following prices at the grocery store. Guns similarly have consistently appreciated in value, though they may become illegal to own eventually (topic for another article!). Land or single family homes may still be good investments, though they are not easily liquidated. Diversification is probably the best investment preparation at this point. Spending money to learn new skills may also be a safe and effective investment. For example, cheese making, crafting furniture, working as a gunsmith, training police dogs, or other skills and crafts might become profitable hobbies and potentially life-saving sources of income in an economic collapse.

If you have been living like most Americans in financial condition white, accruing debt and consistently spending more than you earn, simply reversing that equation and paying down debt will put you into condition yellow. Paying attention to your financial condition is the first step to effective financial preparedness. If you have already eliminated credit card and vehicle debt, then began preparing for potential financial threats, and consider paying off your mortgage as well. Finally, be aware and informed of financial events in the United States and the world, and consider the implications for yourself and your family. Living in financial condition yellow may mean a few lifestyle changes and some extra time spent following world events, but the ability to respond to financial threats without surprise or stress is a good trade for that iPhone or grande latte.