The best thing you can do for you and your family during this economic recession is reduce the risk in your life. This is not the time to be taking uncalculated risks with your money, your career, or your future. Here are three ways you can reduce the financial risk in your life today:
Eliminate As Much Debt As Possible: Put together a plan to start reducing your personal debt. There are many different strategies to reduce your debt. If you have a bunch of debts with similar balances, then start paying off the one with the highest interest rate first. If you have a bunch of debts with a large range of balances, then start paying off the smaller ones first to get them out of the way. Read my plan to get out of debt here.
Make sure you are properly insured: This applies to your homeowner’s, auto, life, and health insurance. Your home should be insured up to the cost it would take to replace it if it burned to the ground. Your contents should be insured at 50 to 75% of the value of your home. For auto insurance, make sure you have at least 100,000/300,000/100,000 auto liability limits on your policy. Carrying any limits less than that severely increases the chances of getting sued for causing bodily injury and/or property damage and not having enough coverage to pay for the damages. If you have kids, a spouse, parents, or other family members that depend on your income, you should carry about 8 to 10 times your income of level term life insurance. This is an adequate amount for them to invest and live off of the interest on a monthly basis. Regarding health insurance, make sure you have enough money in your emergency fund to cover deductibles co-pays, and any other shared expenses you may have to incur if you have an emergency health issue. A catastrophic event during these times can and will bankrupt you if you are not properly insured.
Increase Your Emergency Fund: Most financial planners advise saving a 3 to 6 month emergency fund, but in this economic climate, I think you should save AT least 6 months of expenses in an emergency fund. This has been on my mind a lot lately, and I am going to talk to my wife about increasing our emergency fund, because no job is stable right now, and we now have a house to protect.
America is resilient, and we will push out of this economic slump, but we need to face reality and react to the current economic conditions. Play your cards safe right now. I know that everyone is saying, “how, take chances right now, this is the time when people get rich!”. No, people with money get richer right now, because they can afford to take chances. Many of them still lose a lot of money, but it does not put them under. If you are an everyday citizen without a lot of money to take a chance on an investment, play your cards safe until the economy stabilizes.