The media is saying we’re in a recession, because they love to strike fears in the hearts of Americans. We tune into news programs more when bad news has struck. Think about how many news programs, newspapers, and magazines you consumed during the 9/11 attacks. We love bad news. This is why the media was calling the economic downturn a recession from the beginning. Recession sounds so much darker and desolate than a “down economy” sounds. Call it what you want, but you still need to wake up every day, put your clothes on the same way, and make a living. There are three phases that all families should go through with their finances, and they are:
Protection means protecting your family, yourself, and your finances. In a down economy, you must first think about protection. We often jump to phase two which is accumulation. We want to invest money before we want to protect it. This is a big mistake, because one catastrophic event in your life will drastically change your financial health. Consider these three things to protect you and your family from financial disaster.
Get this straight: we buy insurance to protect us from disaster, not life’s little expenses. So many people get frustrated with insurance companies when they won’t pay for every little thing. Insurance companies should be much less nit-picky about their coverage, but that is a topic for another time. The fact is that we buy auto, health, property, and life insurance for life’s catastrophic disaster that could cause us to go bankrupt. An auto accident with multiple injuries and totaled cars, a health accident or unexpected disease, death, and/or a natural disaster are events that will ruin your personal finances. Insurance companies will pull through for the most part on catastrophic events. I know we all hear horror stories around insurance companies not paying this and not paying that, but the fact is that they are scared NOT to pay the big claims, because enough bad faith lawsuits could cause them to go bankrupt.
- Auto Insurance: make sure you have high levels of liability coverage and collision coverage on a newer car.
- Homeowner’s Insurance: Make sure your house is insured to replacement value, which is the cost it would take the rebuild the house in the event of a fire, hurricane, or earthquake.
- Health Insurance: Make sure you have it. We all talk about how many Americans don’t have health insurance, but it’s not all because they can’t afford it. Many Americans CHOOSE not to carry health coverage. If you want to self-insure yourself, I would recommend having a net worth in excess of a million dollars. My recommendation for those self-employed or employers don’t offer coverage who are healthy is to get a high-deductible health plan with a health savings account attached to it. You can gradually save money in the HSA, and have 100% coverage for accidents and surgeries after you meet the deductible. I was just quoted $84.00 a month for a high-deductible plan that pays 100% of my costs after the deductible with a rider for emergency room visits that does not require a deductible.
- Life Insurance: Buy it when you have someone depending on your income such as a stay-at-home spouse and/or children. Buy a level term life insurance policy for either 20 or 30 years. Buy 8 to 10 times your current income. So, if you make $50k a year, then buy a $500k term policy. Once the term expires, it will be much too expensive to renew the term, but by then, you should be planning to have a large nest egg to self-insure your death.
Eliminating Debt is one of the best and easiest ways to protect yourself from financial ruin. Read my debt elimination plan series to learn about a proven plan to help you eliminate your debt. When you get the debt out of your life, you reduce your revolving payments, free up more of your income, and reduce the risk in your life. It’s the best way to protect yourself in a bad economy!
Increase Your Emergency Fund
If you don’t have an emergency fund, then start one. If you have one, then beef it up. A starter emergency fund should have at least $1,000 to $2,000 in it. A fully funded emergency fund should have 3 to 6 months worth of fixed expenses in it. So, in a down economy beef up that emergency fund to 6 to 8 months of expenses, just in case you or your spouse loses a job or have a tragic life event.
Will we get through the hard economic times? Yes! Is it possible to find a job right now? Yes! It all depends on you. Don’t depend on the government to help you, depend on yourself with the support of your family and your god to help you achieve your goals.