The 3-6-9 Guideline for Emergency Savings
The 3-6-9 Guideline for Emergency Savings
By Julia Chang
We know it’s a message you’ve heard many times before, but it’s worth repeating: Maintaining an emergency savings fund is one of the pillars of a healthy money life.
Why? Think of it like the fire extinguisher you keep in your house; ideally, you’ll never need to use it—but when you actually have to, you’re so glad it’s there.
The same goes with an emergency fund. Sure, you could use that money on a weekend beach getaway. But when the basement floods during a freak rainstorm, that rainy day fund can become a financial life saver.
The one thing that might, however, feel stressful about building an emergency fund is feeling like yours is never sufficiently stocked. How can you really be sure you have enough? There’s no one-size-fits-all answer to that—but there are some rules we at LearnVest think you should consider to help you feel less worried and more confident that you’re maintaining a cushion commensurate with your lifestyle and household responsibilities.
If You Don’t Have Emergency Savings at All
Before we get started, however, first things first: If your answer to “How much is in your emergency fund?” is “What emergency fund?” then we recommend getting started, stat. Consider saving whatever amount you can now—whether it’s $100, $50, or even $25 a month—until you have at least one month of take-home pay stashed away.
This should happen before you accelerate any other financial goals, like paying more than the minimum owed on your credit cards, fast-tracking your student loan repayment or saving for the down payment on your future dream home. Why?
Because if a financial emergency strikes, having even a small cushion could help lessen the chances that you’ll turn to your credit card—and add to debt you may be diligently trying to pay off.
Got at least a month of take-home pay in your emergency savings account? Good. Now you can focus on growing it even further (while tackling other goals, too). Here are some benchmarks that can help you determine if you’re making good progress—or if you need to be more prepared for that rainy day.
When 3 Months of Take-Home Pay May Be Enough
Are you a proud renter, have only your mouth to feed, have a steady paycheck and could always move back into your childhood bedroom if necessary? Then having three months’ worth of take-home pay in an emergency fund may be sufficient.
Essentially, not bearing the responsibility of a mortgage or minor children makes having an emergency fund of more than three months a nice thing to have—but not necessarily a must-have. Another big factor that weighs into this is whether you have a reliable “safety net:” i.e., relatives or close friends who would gladly take you in or help you out if you were really in dire straits.
If all this describes your situation, once you hit the three-month mark, you can feel comfortable directing more of the money you would be putting into emergency savings toward your other big financial goals, like paying down debt or saving more for retirement.
When 6 Months of Take-Home Pay May Be Enough
This is the emergency-fund rule you may have heard most often and, indeed, it is the one that is likely to apply to the largest group of people.
Married with kids, own your home in the ‘burbs and have two steady paychecks coming in? Consider building up to an emergency fund equivalent to six months of the take-home pay of the highest earner in your household.
Married with no kids but still have a mortgage to pay? The same guideline applies. Married single-income renters with a toddler? Ditto. Single with a condo? We think you know the answer.
Basically, if you own your home or have kids under the age of 18 or have no aforementioned safety net to speak of (or any combination of these factors), six months is a good benchmark to aim for. When in doubt, think six.
When 9 Months of Take-Home Pay May Be Needed
OK—now that we’ve got the number six etched in your brain, there are some instances when you may need more than that in your emergency fund—and that largely has to do with whether or not you’ve got a steady paycheck.
If you (or your spouse) are self-employed or are a full-time freelancer, chances are higher that your income is less predictable. One month, you could be juggling 10 deadlines and working 60-hour workweeks. The next month could be spent waiting around for business to come through—and let’s not even get started on the fact that your clients may be a bit pokey when it comes to cutting checks for you.
In a nutshell, the more unpredictable your income, the more you could find yourself thrown off by a chipped tooth or fender bender. So having an emergency fund padded with nine months of the highest earner’s net income may help give you a bit more peace of mind that you could weather a financial storm. (Just note that how much you’re socking away each month toward emergency savings should be looked at holistically, within the context of your big-picture money goals—a decision you may want to make with the help of a financial planner, no matter your situation.)
It bears repeating that the 3-6-9 guideline is merely that—a guideline to help you assess whether the size of your emergency fund can help you sleep a little better at night. We do, however, encourage you to try to meet the benchmark that most closely applies to your situation—because when it comes to an emergency fund, less really isn’t more.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc., is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.
5 Boring Ways to Prep for an Economic Collapse
By Daisy Luther
October 24, 2017
How do you survive an economic collapse? When you think about it, do pictures of Venezuela and Greece run through your head like a movie? Desperation, hunger, dirty faces…it’s like a third world country, right?
It doesn’t start out like that. It ends like that. There are many years of downward spiral before you ever reach that point. And if you’re paying attention, there are a lot of lifestyle changes you can make that will help your family become more “collapse-proof.” These changes are practical and realistic – and some would say, downright boring.
Many people would argue that the economic collapse of America began many years ago. After all, the cost of living has gone up exponentially, while incomes have either dropped or remained stagnant. Some families are still doing okay, but for most of us, that could change in the blink of an eye because we don’t have the same savings that people had in previous decades. It’s entirely likely that Social Security won’t be there for many of us. In fact, quite a lot of middle-aged people are now saying that they’ll work until they die. Retirement is a far-fetched daydream for a lot of Baby Boomers, and Generations X, Y, and Millennial can just forget about it. Something as simple as a missed paycheck or a trip to the emergency room could cause our delicate financial situation to crumble, leaving us broke, stressed, and unable to get back on our feet.
The suggestions below aren’t one bit glamorous. They don’t involve gadgets to make your gun sexier, fully stocked bunkers over an underground stream, gas masks, an off-grid retreat in the Rocky Mountains, or any other prepper paraphernalia that costs more than your kidney would sell for on the black market. Many of you who are reading this are already living by these recommendations, but for others, these changes may be brand new life-changing new ideas.
Live more simply.
Sometimes when we look back with envy at the affordable lives of earlier generations, we’re missing a very big part of the picture. They owned homes and cars, paid their bills easily, and had enough extra to put some back for a very comfortable retirement. Heaven, right?
But what we don’t think about is the fact that they lived a lot more simply than we do today. There was, in many cases, a lot less waste of money. The things folks spend on now are things those generations wouldn’t have even imagined.
Spa days, going to the gym, weekly mani-pedis, bi-annual tropical vacations, eating out every day for lunch, $5 foo-foo coffee, a hundred bucks a month for television, a nice dinner at a restaurant a couple of times per week, fruit already peeled and chopped up for you, a separate phone for every member of the family that they carry with them everywhere … this stuff would have blown their minds. And yet for many Americans, this decadence is a way of life that seems completely normal.
The way we live now would look positively outrageous to our parents or grandparents, yet many today would feel shortchanged without at least some of the things mentioned above.
But we can exempt ourselves from a great deal of that frivolous spending without feeling like we’re living a third world existence. A lot of the folks reading this already have, and if you aren’t there yet, here are some links that will help you tone things down. You’ll be astounded at how much money you can save by making some cuts.
Change how you eat
The way Americans eat is taking a toll on both our wallets and our health. There are folks who go out to lunch every single day with coworkers. On average, Americans spend more money eating out than eating at home. Many people eating at home end up microwaving a prepared meal from the freezer or adding water to the contents of a box. It doesn’t have to be like this.
The first change you should make is to eat in tune with the seasons. The produce that is in-season is far more abundant and less expensive, but for some reason, people feel that it’s perfectly reasonable to eat blueberries in December or asparagus in November. By purchasing produce when the price is the lowest, you can drop your grocery bill dramatically. You can even take it one step further and raise as much of your food as possible in your backyard. It doesn’t get more seasonal and local than that!
Secondly, stop going out to eat all the time. Take your lunch to work and read a book instead of going out on a daily basis. Spend some time on the weekends making meals that you can freeze, then thaw so that you can have a tasty homemade dinner in a fraction of the time. Don’t underestimate your crockpot for providing a hot meal that is ready as soon as you walk in the door. You can even make a rotisserie style chicken in it, with all the fixings.
And speaking of eating at home, if you aren’t cooking from scratch, it’s time you started. If you’ve never really done it, it is so much easier and less threatening than it sounds. These tips can help you get started with scratch cooking and these tips can aid you in doing so in a fraction of the time. Be sure to keep the right pantry basics on hand for your made-from-scratch meals.
One thing that I’ll bet a lot of folks living through an all-out collapse wish they had done is stock up on supplies. The extra food that you purchase today can see you through all manner of difficult times. I had a couple of incidences of job loss back when I was in the corporate world. (Downsizing and cutbacks make this all too common.) The food and supplies that I had put back meant that I didn’t have to spend my savings on groceries and could spend it to keep a roof over our heads. There are loads of ways you can eat from your stockpile when you don’t have the money on hand to buy groceries.
Building a food stockpile doesn’t have to be an outrageously expensive undertaking. I am a single mom and have managed to have a pantry that would feed us for many months even though I have never been rolling in money. In fact, when I relocated from Canada to the United States, I had to completely start over with a bare cupboard and in just a few months, managed to acquire a year’s worth of healthful food. You can read all about it in my book, The Pantry Primer: A Prepper’s Guide to Whole Food on a Half Price Budget, in which I share all of my shopping strategies and stockpiling tips.
Another addition to your long-term stockpile should be buckets of food. Yeah, I sell them here at my online store, but that’s not the reason that I’m telling you to get them. They are professionally packaged to withstand years on the shelf. Yes, you can do this yourself, but will you? Most people won’t, or they won’t do it correctly. I have enough buckets stacked up to get us through quite some time of financial difficulty or shortages. This is an important, long-term investment that I strongly recommend if you can swing it.
And remember, the stockpile method isn’t just for your pantry. You should also be adding all the things you normally use that you can buy in advance. Bandaids, toilet paper, feminine hygiene supplies, shampoo, toothpaste. You get the idea. There are two reasons. The first is that if you run into personally difficult times, it will be extremely helpful to have all the basics on hand so you don’t have to spend your thinly-stretched money on them. The second is that in a really bad economic scenario, you could be dealing with both shortages and hyperinflation. These items won’t be accessible during a time like that. Here’s a list of 50 important non-food things you should be stockpiling.
Pay off debt
Debt in America is at an all-time high. By the time folks end up paying things off, they have often paid the original purchase price several times over. If you have credit card debt, store cards, and unsecured loans, chances are that you are paying epic amounts of interest every month.
If you’re in debt, take a look at the snowball method to help pay things off quickly. I’ve used this technique in the past when I used credit to help us through some difficult times.
What about your home? Similar to credit card debt, many people end up paying several times the cost of their original mortgage due to the interest that accrues over a 20-30 year term. If you can, start applying money to the principal of your loan each month. As well, by setting up bi-weekly mortgage payments, you can end up paying your mortgage off about 5 years earlier without any other extra payments.
Another big monthly expense for a lot of folks is their automobile payment. There are a few things you can do with this. Can you pay your vehicles off so you don’t have those payments? Can you dial back to one car? Can you possibly get by without a vehicle at all? (That won’t work very well for people living in the country or suburbia, but city dwellers can save a bundle by using public transportation.
Reduce your living expenses
Finally, this is the biggie. You need to slash your expenses so that if you end up experiencing a financial SHTF event, you will be okay. It’s time to audit your spending on just about everything and see how much you can reduce your budget. Some of these changes may be radical, but many folks have found they were able to reduce their expenses by half when they took the plunge. Get radical about cutting your costs and you can change your life.
Is your home reasonable and affordable for your family? Maybe it’s too big, too expensive, or in an area with outrageous property taxes. This isn’t a cut that is practical for everyone, but you might want to look into moving to a less expensive place if you can. You could live in a smaller home, one in a smaller town, or rent out a room to a college student to help cover the costs.
Are you as thrifty as you should be regarding utilities? If you keep your air conditioner and heater cranked, you’re throwing away money. Learn to adjust to the weather by piling on sweaters and using these other tips, or using strategies to keep cool without running the AC nonstop. Utilities can be completely out of your control in certain parts of the country. When I lived in California, even in a home without air conditioning, I was spending up to $500 a month on my electric bill, no matter how frugal I tried to be. Now in Virginia, my bill is regularly under $100 and I am not even as careful as I was previously. Some areas have times of day when utilities are less expensive. If your local utility is like that, choose off-peak times for things like laundry, dishwashers, and other tasks that use lots of power.
If you’re still paying a cable bill, it’s time to cut the cord. As long as you have internet, there are numerous streaming services out there which cost less than $15 a month and allow you to watch all sorts of TV programs and movies anytime you want – and without the annoying commercials. We haven’t had cable for years and have been with Hulu, Netflix, and/or Amazon Prime.
Here are some other ideas for reducing your fixed expenses.
What changes can you make?
The way to survive the economic downturn is to dial back the clock to simpler times and focus on preparing for those rainy days that are coming. The bonus to this is that many of the things recommended here to help you survive an economic crisis will help you through other types of emergencies as well.
By changing your lifestyle, you can change your future. When the economy goes downhill – whether it’s just something that affects your family or a larger, nationwide collapse – you will be in a far better position to survive than those who go about their days frivolously ignoring the warning signs. Your costs will be rock-bottom and you’ll have the skills you need to survive with aplomb while others are panicking.
October 19th, 2017
October 18th, 2017
Debt As A Tool Of Enslavement
How The Elite Dominate The World – Part 1: Debt As A Tool Of Enslavement
ZeroHedge.com Oct 16, 2017 9:20 PM
Authored by Michael Snyder via The Economic Collapse blog,
Throughout human history, those in the ruling class have found various ways to force those under them to work for their economic benefit. But in our day and age, we are willingly enslaving ourselves.
The borrower is the servant of the lender, and there has never been more debt in our world than there is right now. According to the Institute of International Finance, global debt has hit the 217 trillion dollar mark, although other estimates would put this number far higher. Of course everyone knows that our planet is drowning in debt, but most people never stop to consider who owns all of this debt. This unprecedented debt bubble represents that greatest transfer of wealth in human history, and those that are being enriched are the extremely wealthy elitists at the very, very top of the food chain.
Did you know that 8 men now have as much wealth as the poorest 3.6 billion people living on the planet combined?
Every year, the gap between the planet’s ultra-wealthy and the poor just becomes greater and greater. This is something that I have written about frequently, and the “financialization” of the global economy is playing a major role in this trend.
The entire global financial system is based on debt, and this debt-based system endlessly funnels the wealth of the world to the very, very top of the pyramid.
It has been said that Albert Einstein once made the following statement…
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
Whether he actually made that statement or not, the reality of the matter is that it is quite true. By getting all of the rest of us deep into debt, the elite can just sit back and slowly but surely become even wealthier over time. Meanwhile, as the rest of us work endless hours to “pay our bills”, the truth is that we are spending our best years working to enrich someone else.
Much has been written about the men and women that control the world. Whether you wish to call them “the elite”, “the establishment” or “the globalists”, the truth is that most of us understand who they are. And how they control all of us is not some sort of giant conspiracy. Ultimately, it is actually very simple. Money is a form of social control, and by getting the rest of us into as much debt as possible they are able to get all of us to work for their economic benefit.
It starts at a very early age. We greatly encourage our young people to go to college, and we tell them to not even worry about what it will cost. We assure them that there will be great jobs available for them once they finish school and that they will have no problem paying off the student loans that they will accumulate.
Well, over the past 10 years student loan debt in the United States “has grown 250 percent” and is now sitting at an absolutely staggering grand total of 1.4 trillion dollars. Millions of our young people are already entering the “real world” financially crippled, and many of them will literally spend decades paying off those debts.
But that is just the beginning.
In order to get around in our society, virtually all of us need at least one vehicle, and auto loans are very easy to get these days. I remember when auto loans were only made for four or five years at the most, but in 2017 it is quite common to find loans on new vehicles that stretch out for six or seven years.The total amount of auto loan debt in the United States has now surpassed a trillion dollars, and this very dangerous bubble just continues to grow.
If you want to own a home, that is going to mean even more debt.
In the old days, mortgages were commonly 10 years in length, but now 30 years is the standard.
By the way, do you know where the term “mortgage” originally comes from?
If you go all the way back to the Latin, it actually means “death pledge”.
And now that most mortgages are for 30 years, many will continue making payments until they literally drop dead. Sadly, most Americans don’t even realize how much they are enriching those that are holding their mortgages. For example, if you have a 30 year mortgage on a $300,000 home at 3.92 percent, you will end up making total payments of $510,640.
Credit card debt is even more insidious. Interest rates on credit card debt are often in the high double digits, and some consumers actually end up paying back several times as much as they originally borrowed. According to the Federal Reserve, total credit card debt in the United States has also now surpassed the trillion dollar mark, and we are about to enter the time of year when Americans use their credit cards the most frequently.
Overall, U.S. consumers are now nearly 13 trillion dollars in debt.
As borrowers, we are servants of the lenders, and most of us don’t even consciously understand what has been done to us.
In Part I, we focused on individual debt obligations, but tomorrow in Part II we will talk about how the elite use government debt to corporately enslave us. All over the planet, national governments are drowning in debt, and this didn’t happen by accident. The elite love to get governments into debt because it is a way to systematically transfer tremendous amounts of wealth from our pockets to their pockets. This year alone, the U.S. government will pay somewhere around half a trillion dollars just in interest on the national debt. That represents a whole lot of tax dollars that we aren’t getting any benefit from, and those on the receiving end are just becoming wealthier and wealthier. In Part II we will also talk about how our debt-based system is literally designed to create a government debt spiral. Once you understand this, the way that you view potential solutions completely changes. If we ever want to get government debt “under control”, we have got to do away with this current system that was intended to enslave us by those that created it.
We spend so much time on the symptoms, but if we ever want permanent solutions we need to start addressing the root causes of our problems. Debt is a tool of enslavement, and the fact that humanity is now more than 200 trillion dollars in debt should deeply alarm all of us.
How to protect your Social Security number
by Kim Kommando
The Equifax data breach is one of the worst of all time. Critical information stolen includes Social Security numbers, birth dates, addresses, and some drivers license and credit card numbers.
With so many people impacted, the Social Security Administration (SSA) is advising everyone to take the following steps to protect their Social Security number.
Open your personal my Social Security accountA my Social Security account is your gateway to many SSA online services. Creating your account today will take away the risk of someone else trying to create one in your name, even if they obtain your Social Security number. Follow these instructions to open your account:
If you already have a my Social Security account but haven't signed in lately, take a moment to log in to take advantage of SSA's second method to identify you each time you log in. This is in addition to the first layer of security, a username and password. You can choose either your cellphone number or your email address as your second identification method.
Using two ways to identify you when you sign on will help protect your account from unauthorized use and potential identity theft. If you suspect identity theft, report it to the Office of the Inspector General and visit identitytheft.gov.
One important note you should know: If you haven't gotten your free annual credit report in a while, now's a great time to do that too. There are many sites that promise you the report for free and then sign you up for other things. Click here to go to the site that really gives your annual credit report for free
What to do if your Social Security number has been compromised
If you know your Social Security information has been compromised, and if you don't want to do business with Social Security online, you can use the Block Electronic Access feature. You can block any automated telephone and electronic access to your Social Security record.
No one, including you, will be able to see or change your personal information on the internet or through the SSA automated telephone service. If you block access to your record and then change your mind in the future, you can contact Social Security and ask to unblock it after you prove your identity. This resource is available to certain victims of identity theft and those who need extra security.
As we said, the Equifax breach is one of the worst of all time. It's very important that you take every precaution to keep your critical data safe.
Hedge Fund CIO: "Never In Human History Have So Many Things That Weigh Nothing Had So Much Value"
One River's CIO Eric Peters touches on some of the most topical issues, including his latest take on bitcoin and money in particular, and the definition of value (which is increasingly more weightless) in general, the deflationary impact of tech on prices and wages and what the Fed's inflation target should be in this "new normal", recent trends in R&D spending, and, of course volatility.
“Imagine 3,500 elephants,” said Andrew Jones, Exchequer Secretary to the Treasury. “Or consider 900 double decker buses.” And at least one bored American did. “That is the rough weight of the 1.2bln coins the UK public has handed in over the past six months.” You see the British have introduced a new twelve-sided pound coin, replacing the little round bloke they’ve had since 1983 (no longer legal tender effective today). This reminds us that money is whatever we all agree it is, or what we’re told it is.
Naturally, the people who print our money tell us it is something real, tangible, weighty. Like an elephant, a bus, or even gold. But it’s not. Money is an illusion, swirling in the ether. Imagine 290k Bitcoin ($5,856 record high this week), or consider 4.7mm Ethereum. They’re both worth 1.2bln pound coins, but weigh less than 3,500 elephants. They weigh nothing.
In fact, never in human history have so many things that weigh nothing had so much value, fueled such vast fortunes. Data weighs nothing. Knowledge weighs nothing. Software weighs nothing. Algorithms weigh nothing. And as the singularity approaches - that point when artificial intelligence surpasses all human intelligence - we struggle to fathom its infinite weight, uncertainty.
As humanity transitions from weight to weightlessness, it seems the gravity that once tethered asset prices to earth is losing its grasp. Perhaps the profound power of weightlessness will accrue in extraordinary commercial ways (and profits) to the companies with the infrastructure to harness it - maybe this is what we are beginning to see. Or perhaps, it is simply that after a decade of unprecedented monetary meddling, our bankers have broken the bond of fiat, shattering the illusion.
Social Security Means-Testing Looms: "It's Impossible Without A 50% Income Tax Hike"
Social Security Means-Testing Looms: "It's Impossible Without A 50% Income Tax Hike"
Oct 14, 2017 2:30 PM
Authored by John Mauldin via MauldinEconomics.com,
The projected total US debt will be $30 trillion within 10 years, using the CBO’s own numbers. But the CBO also makes the rosy assumptions that there will be no recessions and that GDP will grow at a 4% nominal rate.
Now, that’s possible; I'm inclined to haircut it a bit. If you asked me to bet the “over/under” on the debt in 2027, I would bet the over at $35 trillion.
After the next recession the deficit will be $30 trillion within 4–5 years and then grow from there at a rate of anywhere from $1.5 to $2 trillion per year (I covered my team’s calculations in this letter).
Is it any wonder why I’m so concerned about pensions?
Social Security Is Impossible Under This Deficit
Note: That is not the CBO’s projected debt. It does not take into account the off-budget deficit that still ends up having to be borrowed. Last year the deficit was well over $1 trillion—but we were told it was in the neighborhood of $600 billion.
If any normal company tried to use accounting like the US Congress does, the SEC would rightly declare it fraudulent and shut it down immediately.
But the space representing net interest grows much faster than GDP does - fast enough to make total federal spending add up to one-third of GDP by 2090.
Obviously, this chart is based on all kinds of assumptions, and reality will be far different. I doubt we will make it to 2090 (or even 2050) without at least one global depression or other calamity that radically resets all the assumptions.
Beneficial changes are also possible - biotech breakthroughs that reduce healthcare expenditures, for instance.
Still, looking at the demographic reality of longer lifespans and lower birthrates, it’s hard to believe Social Security can survive over the long run in anything like its present form.
But any major change will mean that the government is breaking its promise to workers and retirees.
How Will We Fund the Deficit and Fulfill Pensions?
And now we come to the really uncomfortable part.
Larry Kotlikoff wrote in an article on Forbes that we would need an immediate approximately 50% increase in taxes to fund our future deficits. That’s what we would need to create a true entitlements “lockbox” with the funds actually in it.
But surely everybody knows by now that there is no lockbox with Social Security funds in it. That money was spent on other government programs and debts. And so when the CBO doesn’t count the trust funds as part of the national debt, they are not only being disingenuous, I think they are committing financial fraud.
The money that will actually pay for Social Security and Medicare down the road is going to have to come out of future taxes, just as for any other debt of the US.
So at some point – even though Republicans are jawboning hard about cutting taxes now – we are going to have to raise taxes in order to fund Social Security and Medicare. I personally think it will have to be done with a value-added tax (VAT), because the necessary increase in income taxes would totally destroy the economy and potential growth.
And yes, I know some of you will write back and say we had much higher tax rates in the 50s and we had good growth then, but our demographics and productivity levels were completely different in that era.
Plus, nobody actually paid the highest tax levels. I remember that in the 80s, before Reagan cut the tax rate, I had so many deductions that my effective tax rate was about 15%. The irony is that after the Reagan tax cuts, my total tax payments went up, not down – I lost all of my cool deductions! Aaah, the good old days…
But the simple fact of the matter is that no Congress is going to fund Social Security and Medicare through tax hikes. Before they ever go there, they will means-test Social Security and increase the retirement age – which they should.
Of course, Congress could always authorize the Treasury Department to authorize the Federal Reserve to monetize a certain amount of the Social Security and Medicare debt, which is essentially what Japan is doing (and seemingly getting away with it). I think we should all be grateful to the Japanese for being willing to undertake such a fascinating experiment in monetary and fiscal policy.
Let me close with a quick sidebar note. I think the Fed’s mad rush to raise rates and reduce its balance sheet at the same time is unwise.
I mean, seriously, is the Federal Reserve balance sheet making that much of a difference to the US economy? Perhaps when that extraordinary balance was created, it did… but not today. This is one of those times when I think our policy makers should go slowly and tread carefully.
4 Things Everyone Should Do to Prepare for an Economic Recession
by Emergency Essentials.
Some economists are suggesting an economic slowdown is imminent. Others say the next one is probably a while away. Either way, it’s wise to prepare financially now for what’s to come.
“The key to keep in mind is that anything can happen. Therefore, always prepare for any possible emergency,” said Kaylee Chen, a peer mentor at the University of Utah Personal Money Management Center, in an e-mail.
Chen recommended four steps to prepare for an economic downturn: Have a savings, have necessities like food storage, learn a new skill and mentally prepare.
Start saving now for the next recession.
First, have or start a savings.
Peter Dunn, a financial columnist for USA Today, suggested that more people have been saving since the 2008-2009 recession because they’re thinking about it. Chen said she hadn’t necessarily been seeing that.
“People are definitely more aware of the idea of saving. However, following through and acting on it is a different situation,” she said. “I find a lot of people are still spending.”
She suggested budgeting based on the 50/30/20 rule. Fifty percent of income should go to fixed expenses. These are expenses like a house payment and utility bills that must be paid.
Thirty percent of income should go to discretionary expenses. These are more flexible expenses like groceries, gas, and entertainment that can be adjusted.Twenty percent of income should go toward investing or financial goals and saving for emergencies. Chen recommended women put 12 percent of their salary in long-term investments and men 10 percent.
“The reality is that women live longer and make less income than men,” she said.
She recommended people talk with a financial planner yearly.
“They will work with you to plan for children’s college, travel, or retirement,” she said.
The important thing is to start saving. “Even as small as setting five dollars aside, it’s still a start,” she said.
Secondly, food might be hard to come by during a recession. Prepare while you can by obtaining an emergency food supply. Second, keep some necessities like food storage.
In any emergency, whether it be short-term or long-term, it’s important to recognize nobody can do everything by themselves. Therefore, one of the necessities to build is a list of resources. These can include a church or non-profit organization. It’s also useful to network to develop a list of where to go for extra help in case of job loss or other emergency.
A column making the rounds online that was said to have been written by a man who survived Hurricane Sandy pointed out that networking is useful for many aspects of emergency preparation.
“Quote, ‘A man with a chainsaw and knows how to use it is a thing of beauty.’”
Third, Learn new skills. Like chainsaw wielding.
These can translate into side jobs for additional income. Chen used the example of a piano teacher. Secondary skills can be useful when a person is younger because it helps them faster achieve their financial goals. When a person is older and around retirement, a side job can help them with retirement savings.
Finally, mentally prepare for bad things to happen.
One key to mental preparedness is to get out of debt. Chen encouraged a budget or lifestyle change. Dunn suggested decreasing spending by 10 to 15 percent over time. “You’ll tighten the budget before you are forced to tighten the budget,” he said.Another is to practice caution in an investment portfolio. “When the market goes down, many people get scared of the market and take out their money. You do not want to buy high and sell low,” Chen said.
Kiplinger, a finance education web site, pointed out that markets quickly recover. Since 1945, the site said, markets that have lost 10 to 20 percent have rebounded in just four months on average. Bear markets, with losses of 20 percent or more, have had an average recovery time of just 25 months. “If you’re in middle age, consider making a portfolio less aggressive,” a Kiplinger column said. “No single sector should claim more than 5% to 10% of your holdings.”
Very few people can affect global markets. But they can take care of themselves and their families. “Understand that you have no control over the economic downturn,” Chen said. “Honestly, all one can do is to wait.” And, she added, a person can start taking these steps even during an economic downturn.
“It’s never too late,” she said.