Financial Preparedness

If anything should reinforce the need for financial preparedness, it is the ongoing government shutdown that has simultaneously not paid nearly a million government workers for a month and at the same time, made it impossible, per their work contract, to work elsewhere so they can earn money to pay their bills.  I can't even fathom being told to come to work but we won't pay you for a month or longer!

Even though this sort of forced-to-work-but-not-get-paid scenario may not happen to you personally, something similar like a major disaster or major recession or the sudden closure of the business you work at could have a similar impact on your finances so it behooves everyone to be financially prepared for such a situation.  This means...

• Get out of debt as quickly as possible.  Pay off the house, the car, the credit cards, and any other debt you have so that if there is a financial catastrophe, your only bills will be for utilities.
• Save up an emergency fund that will cover six months to a year of your monthly bills (which, you can imagine, will be easier to do if your monthly bills are utilities and food and gas and not a mountain of debt payments!).
• Stockpile a month or more worth of food.  Within days, people were already in line at food banks to get food to help them through the shutdown.  If you have a good amount of food at home (rotated through the food that you usually eat so it doesn't expire) you could go for days or weeks without going to the grocery store (also good for those times when you are ill or there is a massive storm and you can't get to the store).
• Do the occasional no spend week and see how that goes. Get used to not spending money every single day for coffee and lunch and other random purchases.
• Get in the habit of paying your bills ahead of time.  We pay our car insurance every six months, our HOA every six months instead of monthly, and our homeowners insurance annually.  With these bills paid ahead, we don't have to worry about them for months at a time.
• Also stockpile supplies you regularly use.  Toilet paper, soap, shampoo, etc. buy these things when they are on sale so that you will both save money on these necessary items and have plenty in storage in case you can't afford to buy them during a financial crisis.
• Know the rules.  Know the rules about taking money from your 401k during a financial crisis, know the requirements to keep your medical insurance in affect during a crisis, know if you can or can't accept other work during a shutdown event, etc.
• Have cash on hand.  In addition to an emergency fund, having actual cash stashed at home can cover small emergencies (like needing to fill up the gas tank before a storm).
• Consider creating multiple sources of income.  Doing side gigs or starting a small business out of a hobby can ensure that there is always a stream of income coming in.  Even if it doesn't match the income from your main job, it's something to help you pay the bills.
• Have an emergency plan.  If you suddenly find yourself without an income, consider taking some drastic steps to cut expenses (pulling kids out of daycare and watching the at home, shutting off cable TV, only driving a couple days a week to save gas, changing your cell phone plan to a cheaper plan, etc).

10 Financial Checks

Here are 10 things that everyone should check regularly to ensure their financial well being:

1. Pull your free annual credit report and make sure all of the info is correct.
2. Ensure your insurance coverages (like, health, auto, home, long term care) meet your current needs.
3. For bills where you have options for providers (not water because most places only have one water service provider, for this I mean things like internet, insurance, etc. where you can shop around for the best deal) call around to the competition at least once a year to make sure you are getting the best deal.
4. Make sure you are getting the best banking deal (often credit unions are better because they charge no fee for their services).
5. If you do use credit cards, make sure you are getting the best deal as far at interest rates/terms go.
6. Check to see if you are getting the best deal on your mortgage.  I never recommend refinancing your home to pull money out (you want to pay it off ASAP!) but if interest rates drop or you want to switch your term from 30 to 15 years, refinancing may make financial sense.
7. Review your utility bills and see if there is anything you can do to reduce these.  Many utility companies offer things like free devices (low flow shower heads, etc), free home energy audits, and rebates for high efficiency appliances to help you save money.  This along with conservation efforts can go a long way towards reducing your utility bills.
8. Check your monthly bank/credit card statements for any sort of money drains that you need to fix.  You may want to cancel things such as auto-pay for a gym membership you never use or subscription services billed automatically to your credit card that you rarely use.
9. Get rid of any big financial problems hanging over your head if possible.  People often pay to get rid of their time shares, for example.  They may encourage someone to refi a loan to get them off the loan as a cosigner if they had previously co-signed for someone.  One guy I know worked 90 hours a week for a few months to get rid of a debt that had been teetering on the edge of collections.
10. Revisit your financial situation to make sure you are on track including your budget, your investments, your retirement accounts, your net worth, etc.

Retail-pocalypse

Retail stores sure have changed a lot in the last few decades.  Years ago if you wanted to buy meat you went to a butcher shop, if you wanted a dress you went to a dress shop, and if you wanted shoes you went to a shoe store.  Then big department stores consolidated all of these individual stores into one big store where you could buy everything you needed at one place.  Then came malls where separate retail stores were consolidated into one gigantic space that also featured food courts, movie theaters, and other entertainment spaces.

I grew up in the age of malls where people would "hang out", meet up with friends, buy a snack, maybe go to a movie, then buy stuff that we either saw in store windows or were popular with the fashionable people.  I bought my first pair of name-brand jeans at a mall (San Francisco Riding Gear), and up until seven or eight years ago, I would "shop til I dropped" at malls buying all kinds of name-brand items (Coach purses, North Face jackets, etc) from major mall stores (Macys, Saks, etc).

Now we are in the midst of another shopping revolution, namely the online shopping revolution.  With so many people shopping online, brick and mortar stores are going the way of the corner butcher shop (ie: they are closing up at a rapid pace).  This is a sad state of affairs for those of us who remember the good old days of shopping but it is also a sign of the times.  Back in the day you had a store or two where you could compare prices and buy the item you wanted from the lowest price store.  These days you have thousands of stores selling the item you want and you can compare prices from the comfort of your home computer. 

I know my shopping has certainly changed over the years.  We used to shop for fun, buying stuff that we saw that we liked or buying name brand items to keep up with our peers so we wouldn't look like we shopped at the Goodwill (this was a BAD things years ago since it made you look poor, these days I only shop at the Goodwill...how times have changed!).  Now when I go to a store I have a list of things that I want to buy that are really needed, I am no longer trying to "keep up with the Joneses", and I will compare prices obsessively online before I buy anything so I know I am getting the best deal.  I prefer shopping online if it saves me a lot of money (like when I need a cell phone case which costs $30 at a local retailer but which I can find online for around $10) and I also like the idea of not having to go to stores unless I really really need something; I'm just not much into shopping like I used to be.

So RIP brick and mortar stores.  Im sure in the far distant future we won't even need to shop--we will be able to 3D print the things we want and need in the comfort of our own home.  It's crazy how fast things are changing these days!

Another Financial Crisis on the Horizon?

According to Bill Gates, he is certain that another financial crisis is on the horizon (although he doesn't know when it will happen).  Two things struck me about this, the first that, duh, our economy is cyclical and there are always ups and downs so it shouldn't surprise anyone that in 2008 there were bad financial times then things got better and then things could conceivably get worse.  The second thing he said is "fortunately we got through that one reasonably well."  Uh, he might have got through it reasonably well but there were a lot of people who lost jobs, lost houses, and it totally turned their lives upside down.

No matter when a financial crisis is set to happen, EVERYONE needs to prepare like it will hit tomorrow.  And everyone needs to prepare like it will be ten times worse than 2008.  It seems like the people worst off during the last recession were middle to high income folks whose jobs were extraneous, whose companies were extraneous, and who were in debt (lots of credit card debt, house mortgaged to the hilt, car debt, etc).  In other words, these people were living on the financial edge and it took very little to push them over the edge into bankruptcy and poverty. 

Here's where to start:

• Get out of debt ASAP.  Dave Ramsey is very good for this.  I listened to his radio show practically until my ears bled and I could hear his answers to people's financial questions in my sleep and that finally gave me the incentive to get out of debt.
• Make paying off your house a goal.  Can you image how financially set you would be if you had NO mortgage payment, no car payment, no debt payments at all?  It is definitely easier to weather a financial storm when you only have to earn enough to pay utilities, property tax, food, and gas.
• On the flip side, don't take money out of your house even if you are receiving enough refi offers to wallpaper a room.  We have a lot of equity in our house and every day when I check the mail I am getting flyers to refinance my house.  These companies think I want to put my home in jeopardy and risk being homeless so I can go on a vacation or use the equity to buy a new car???
• Have multiple streams of income.  If you have all of your eggs in one (job) basket, then when that job goes away so does all of your income.  If you have money coming in from a half dozen sources, it makes it much easier to weather a financial storm if one job or source of income goes away.
• Always keep improving your skills.  Watch what is happening on the horizon and match your skill set with what will be needed in 10 years, not what was needed 10 years in the past.  There are some skills that are kind of future proof (like nurses and plumbers) and there are some skills that really aren't needed anymore (secretarial pool skills).  Then there are the jobs that are on the fast track to elimination (like store cashiers, commercial drivers, etc).
• Have good interpersonal skills and social relationships.  It's always easier to weather a financial disaster when you have other people to lean on and help you out.  Of course, offer to help out others when they are in need as well.
• Stockpile!  You don't need 10 years worth of food and supplies but having enough on hand so you aren't like one of the people on the news grabbing the last loaf of bread in a store when a storm is set to hit is a good idea.  Likewise, if you have enough of the necessities stockpiled (food, water, toilet paper, medicine, household supplies etc) you can weather anything from a lengthy illness to a job layoff, with little financial effort.
• Control your spending and live below your means.  During the last recession I saw plenty of people go from high earners to can't find a job.  Some continued to buy their Coach purses and Jimmy Choo shoes until their credit cards were declined even though they KNEW they didn't have any income coming in.  If you can control your spending and live below your means now when times are good, you will be well set to weather another financial disaster.
• Don't be afraid to take big, decisive actions.  In 2010 my biggest client was involved in a huge financial mess.  Rather than try to replace that client or hang around and try to get some scraps from what was left of the organization I had worked for for 10 years, I told hubby we should sell the house and everything in it and travel for a while with only what we could carry in our backpacks.  At the same time our house was losing value daily and the recession was in full swing so the financial future didn't look good for anyone at that point.  Surprisingly (really really surprisingly) hubby said yes.  He NEVER likes change so I have no idea what inspired him to agree with me.  We sold our house when it still had some equity in it, got completely out of debt, put a few things in storage, and hit the road to travel for a while.  That plan turned out really well for us.  Eventually we resettled in a new city and were able to remain debt free (until I bought a car and used my credit cards and now...I'm working on paying off debt again).
• Be proactive.  It's easy to stick with the status quo and hope for the best but that doesn't help you when you know a major financial crisis is looming (like a new baby coming in eight months, a possible divorce on the horizon, an employer that looks like they will be bankrupt sooner rather than later).  Many people freeze in these circumstances and hope things will blow over or that things will somehow work out but when you know something bad is coming, take proactive action--polish up your resume, start networking, find a better job, sell stuff you don't need and bank the money, etc.

Hopefully the next financial crisis won't be so bad but one never knows so prepare now for whatever may happen.

10 Things to Do Now...In Case Your Husband Leaves You

It's been a sad few months for a couple of friends who are in the middle of getting divorced. Besides being emotionally devastated, they are basically financially devastated as well. Here's some stuff I learned from them as well as from a handful of women I know whose husbands died suddenly, ended up in a coma/in the trauma center for months, lost their jobs (when the husband was the sole breadwinner), and otherwise went off the rails leaving the women to basically fend for themselves.

p.s. Obviously these tips work just as much for men as for women, I just thought the title was catchy.

1. Have your own emergency fund with a minimum of $2000 in it. Not your family emergency fund, not the "my husband has plenty of money" emergency fund, not the "I have plenty of credit cards" emergency fund. You want $2000 CASH in a secure bank account that you can easily access.


2. Have all of your important documents in a secure place where you can easily access them. These documents include drivers license, passport, birth certificate, marriage certificate, divorce decree, death certificate, mortgage deed of trust, car titles...basically all of the official documents available for your immediate family.


3. Have an education. There are quite a few women that will get a high school diploma and stop their education. They will ensure their husbands get through college, they will focus all of their attention on their children's education, but they put off completing their own education and then when they end up on their own and could really use these credentials, they don't have them. Get at least a bachelor's degree even if it means you take one class per quarter for ten year. Of course, you will want to cash-flow your education and not take out student loans.


4. Have some money-earning skills. Whether you dabble in website design or resell stuff on Craigslist, having the ability to earn money is vital to your continued well being whether or not your income is needed to support the family.


5. Have a network of friends. Many times women get so focused on their husbands and kids that they let their friendships lapse because they don't have the time or energy to sustain them. When all Hell breaks loose, you will be thankful for the support of your good friends.


6. Be debt free. If you end up on your own, you don't want to also be bogged down by a pile of debts that need to be paid each month. Your monthly bills should be minimal (cell phone, utilities, etc) and your consumer debt should be zero.


7. Insist that your spouse if debt free as well. If something happens to your spouse, you could be left with all of his debts (this happened to one of my friends. When her husband died suddenly, instead of having time to grieve his death, she was immediately barraged by debt collectors). This is also important if you get divorced--your spouse can be given the debts by the court but that doesn't mean he will pay them and the debt collectors will come after YOU.


8. Live in a reasonably-sized house. You don't need a McMansion to have a nice home. Having a house that one income can easily support is really important in the event that YOUR income ends up being the one paying for your home and utilities.


9. Know how much your spouse makes, how much the monthly bills are, how the family money is invested, the information for all bank accounts, what kinds of insurance policies your family has, know what each line of your last tax return means, what pensions/retirement plans your husband has, what kind of health insurance you have, and, most importantly, have all of this information written down somewhere in case you end up paying the bills if a spouse suddenly dies or your divorce attorney needs a place to start looking for assets.


10. Learn how to do everything your husband does even if it seems confusing, boring, or icky. Your husband may not always be around to fix the plumbing, mow the yard, do your annual taxes, or DVR your favorite shows. The more you know how to do, the better off you will be in the end.

Hopefully your marriage lasts forever and you are able to grow old with a loving spouse but that doesn't always happen. More often than not, when a marriage ends either by divorce of death, the spouse that is left behind ends up grieving the end of the relationship while at the same time trying to deal with creditors, messed up plumbing, paying bills, raising the kids, and the multitude of other things that before took two people to accomplish.