Financial planning is one of the most important skills an entrepreneur can master, but is often overlooked. Personal finances are not nearly as conspicuous as knives, guns and food, but they are more important, believe it or not.
41% of people can’t afford a small financial recession without going into debt. 80% have unwanted debt. 33% of Americans have never made a budget. When we look at these numbers, we realize that there is a huge percentage of people who just don’t understand financial planning and are, simply put, financially illiterate.
If you want to prepare for what the future holds, financial education should be one of your top priorities. Becoming self-sufficient is a requirement in today’s world, and it is one of the most valuable and easily learned skills that you can use throughout your life. In this guide, we look at other reasons to prepare financially and share 7 steps to do so.
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Financial problems can occur on a personal level, up to and including a global catastrophe. There are many pitfalls for individuals, but there are also regional, national and global risks that we cannot control. No country in the world has been spared difficult financial times: the Great Depression in America, the areas torn apart by World War II, and the many Third World countries that exist today. Well-developed countries try to create economic safety nets, but nothing is ever guaranteed.
Your financial situation affects your preparedness for other emergencies or disasters.
I don’t remember learning much about finance in grade school. I had a military background, a high school education and a financially wise father who helped me grow over the years. But consider me blessed, because the vast majority of Americans have none of that.
From an early age, young people are faced with financial decisions that can affect the rest of their lives. Student debt, loans, budgeting, saving and investing may be new to students. One mistake and anyone can end up in a financial hole they can’t get out of.
Self-sufficiency is the highest level of preparedness. This means having as few people as possible in your life who are not under your control. Financially, this means that you are debt free and have sufficient capital or investments to support yourself and your family for the rest of your life. The technical term for this is financial independence.
Some people are obsessed with financial independence and will do anything to retire early. These people are part of the FIRE (Financially Independent, Retired Early) community, which has gained popularity recently. Fire hunters are usually well prepared financially, but they are an extreme example. You may need to budget a very large amount to save 60% of your income for early retirement, but there are many other ways to prepare financially.
Financial well-being can reduce stress, open up new opportunities and reduce risks in everyday life. With adequate funding, individual and global emergencies become less disruptive. If you find yourself in a situation where finances are a constant problem for you, it is best to address it as soon as possible.
Seven financial ideas to explore:
- Establishment of the emergency fund
- Understanding and managing debts
- Principles of budgeting
- Consumer culture and spending habits
- Be frugal and spend less for more
- Invest and let your money work for you.
- Diversify and don’t put all your eggs in the same basket.
Read on to find out how to preview these financial topics.
41% of American adults are unable to pay $1,000 in emergency aid without incurring debt.
This is how people expose themselves to lifelong financial problems. Medical emergencies are one of the biggest expenses that can overwhelm a family and cause financial hardship. Large car expenses that you can’t afford can destabilize your work and your job. Refusing to take care of your home because of your expenses can lead to cascading problems that worsen over time.
Everyone sees the value of creating and maintaining an emergency fund, but most people disagree on how much to withdraw and where to withdraw it.
Situations vary, but the preferred method is as follows:
- Set aside at least one month’s income as short-term savings to protect against overdrafts, small emergency expenses and potential budget shortfalls. These savings should be combined with check savings, combined with overdraft protection, and with cash in a safe or safe deposit box for easy access.
- Establish a larger emergency fund to cover major emergencies and potential job losses. This amount should build up over time and cover 3 to 6 months of expenses, depending on your job security. These larger savings should be placed in a high-interest savings account or other easily accessible low-risk investments.
- Don’t put too much money in savings beyond the amounts needed for the first two steps. You need to throw more money around, invest and pay off your debts.
When people say you should have a certain amount in your emergency fund, they usually don’t know what they are talking about because everyone’s situation is different.
Setting up an emergency fund should be your first financial priority (followed by quickly resolving your debt problem) on the road to financial preparedness.
80% of Americans have unwanted debt.
I was in a big debt hole myself and I can tell you it’s not funny. Debt can affect many areas of your life, in the past just your finances. The sense of powerlessness it causes can deteriorate relationships, create dependency, and encourage poor decisions.
There are several camps that offer two types of debt advice: Keep good debt at low interest rates or eliminate all your debt. The real answer to follow is your own. If you are at low risk of losing your income, if you own a home and have the financial capacity to… It can be profitable to have good debt. For most people, it is the best way to get rid of all debt as quickly as possible.
Credit cards, payday loans, high interest auto loans, and student loan debt generally have above average yields and generally fall into the bad debt category.
How do we get rid of the debt? Here are some methods:
- Avalanche method – Pay the highest interest rate possible.
- Snowball Method – Pay off as little debt as possible within your budget. If you are paying several cards/loans, use the waived payments to pay an even larger amount on the next highest amount.
- Make more money – find a way to turn your time into more money. Buy a run, mow the lawn, drive to Uber or deliver a pizza. Working 12 hours a day can be exhausting, but it’s worth it to get out of the debt hole you could find yourself in for the rest of your life.
- Spend less money – The best way to save money is to create a budget.
For this last point, budgeting can be the best way to get your finances back under control.
There are many budget apps, software and even people you can hire to do it for you. But it doesn’t have to be that hard. After all, it’s just addition and subtraction. Make no mistake: some applications and software can make it easier to keep track of your spending. Google Sheets is a robust tool that makes it easy to collaborate on a budget – and it’s free. However, one of the easiest ways to create a budget is to simply sit down with a pen, paper and a bank statement.
To draw up a monthly budget, you will need
- Specify your income for one month (taxable income)
- Find itemized bills (credit card statements and current accounts should have them).
- Organize your expenses by category
- List of your expenses for each category
- Subtract all your expenses to determine your net income.
Once you have established your spending categories and know your monthly net income, you can get a good idea of the categories for which you can set monthly limits to stay within your budget. If you have a lot of one-time expenses, you can repeat this process for other months and find an average for your budget. Using an annual average is a good idea because it takes into account annual costs and expenses that you may not realize by looking at a single month.
An example of a budget using the popular Currency Budget application.
A budget is a useful planning tool that can help you with your debt, investment or savings strategy. The latter is one of the most fun goals for us frugal preparers – once you see that you may be overspending, it’s pretty easy and fun to cut costs in these areas.
Consumption is a big part of American culture. It has been great for our economy and has allowed most Americans to live great lives. Unfortunately, something superfluous is too good.
Impulse buying, Jones tracking, fast fashion and other addictive consumption behaviors are the areas where you will find most people with financial problems. Ignore the hype and culture that asks you to buy more to fill the void inside you. Spoiler alert – it won’t fill up if you buy anything.
The riots and violence on Black Friday show how overconsumption can bring out the worst in people.
We can blame marketers, savvy businessmen, lenders or cheap Chinese products for a consumer culture that has turned into a beast. As an individual, that doesn’t do you much good. Do what you can, and control what you can actually control. The two things you can control are your income and what you spend that income on. It can also be difficult to regulate your income, which is why you should only focus on your expenses for now.
If you’ve set up a budget like we suggested earlier, you know what you’re spending your money on. Consider limiting your spending as much as possible, even if you can afford the expenses you have. Think carefully about whether a new designer outfit, a brand new truck, or any other purchase that has no chance of gaining value is worth it. The more things you buy, the more you have to worry about things that can waste your time.
Once you decide what you really need and what you can spare, your budget will be much healthier. With a healthy budget, you can reduce your debt or build wealth.
When can a dollar be bigger than a dollar? If you have patience and business acumen. Learning how to grow your money can have a real impact on your finances. The best ways to make your money work for you are as follows
- Buy wholesale – Buying wholesale is a ready-made strategy – you don’t want to run out of essential supplies in an emergency. Buying in bulk is therefore doubly effective, as buying in bulk can save you a lot of money.
- Coupons aren’t just for housewives – these days there are coupons for just about everything. Whether you’re buying Harbor Freight tools or anything else online, check first for coupons or discount codes.
- Seasonal Deals – Holidays have become a magnet for bargains. If you are planning to buy something, you can wait until it is on sale to buy less impulsively and save money. One of the most important ones right now are Black Friday and Cyber Monday.
- Buy something that can be repaired – If you buy something too cheap, you will have to throw it away when it wears out or breaks down. Buy tools, clothing and other items that can be repaired rather than replaced.
- Browse around the sites – thrift stores, warehouse sales, consignment shops, Craigslist, flea markets, swap meets – there are many ways to find used items at good prices. You have to know a little bit about what you are looking for, because there are many items that are not very cheap. Most of them are bargain shops, which gives you a good opportunity to practice your negotiating skills.
- Free – Nothing is better than free. You can find free stuff in Facebook groups, Craigslist ads, and through your friends and family. We have several free articles in our list of free articles. Beware of other free online claims – usually they want you to pay for shipping, which is actually the cost of things.
Making the dollar go further is, in my opinion, one of the funniest financial preparation practices. There’s nothing like the feeling of having made a good deal through thorough research and tough negotiations. If you’re on a budget and have some money saved up, it’s time to do what makes rich people richer: Invest your money.
Make your money work for you.
The problem is that it’s much more complicated than it sounds. There are many different options with different risks. Entire workspaces are designed for you – for a fee. Talking to a financial manager can be a good option if you don’t want to manage the risk yourself. On the other hand, financial managers have not fared better than the stock market in general, mainly because of the fees they charge.
The amount by which a portfolio manager outperforms the market is called alpha. There are many smart people with high alpha, but they also have high costs as a result. Add to that the fact that past results, on which alpha is based, do not imply future results, and you can understand why portfolio managers do not work, nor does the S&P500 index fund with its low commission.
Individual stocks are very difficult to predict, and it is even more difficult to determine entry and exit points. Financial analysts sift through tons of data and information every day. If you don’t know something they don’t know, you’re unlikely to have an advantage over fund managers for individual stocks.
One of the easiest ways to invest in a low-yielding S&P index fund is to use Robinhood, a user-focused investment app that lets you buy stocks, ETFs, cryptocurrencies and even stock options without trading commissions. Competitors panic at Robinhood’s disruption and begin offering gifts, but Robinhood remains the market leader. If you open an account with them using this link, you’ll even get free shipping!
The simple stock index outperforms most financial managers. (Chart from Investopedia.com)
SPY or VTI, the two big chunks of the stock market indexes, performed well. While this is one of the best options among many sources, it doesn’t make sense to put your money into one investment. There is a risk of investments not performing, but there are also general risks that can affect your investments, such as B. financial collapse and pandemics. That’s why it’s important to diversify not just your portfolio, but all of your investments.
Diversification is just an expensive financial word for not putting all your eggs in one basket. It’s a matter of common sense. As a host, I suggest you do this with just about everything from food storage to survival caches. This may be even more important from a financial standpoint, as diversification has proven to be effective for financial success by minimizing risk.
The eggs in the basket break when the basket is lowered. You don’t want your financial eggs to be exposed to this risk, so divide your assets. Each investment has different risks, but if you make different types of investments – they carry different risks.
There are many investments with integrated diversification, as we saw earlier in Invest Wisely. Funds, such as B. Investment funds and exchange-traded funds (ETFs) combine several securities into one fund to reduce risk compared to a single security. But even these funds can be diversified.
Besides investing, there are other ways to make your money work for you. You can invest:
- Stocks, ETFs and stock options are perfect for aggressive retirement plans or long-term savings.
- Cryptocurrency – An excellent way to hedge against inflation or currency manipulation, as well as a speculative investment.
- Securities, bonds and certificates of deposit – These are suitable for very low risk pension schemes, but some are not above inflation.
- High savings and returns – ideal for short-term and long-term emergency savings.
- Private Equity – This is a good fit if you have a thorough knowledge of the business and a lot of capital, as there are usually significant minimum investments with no guarantee of return or timing.
- Real estate and real estate investment trusts – Ideal for do-it-yourselfers who want to track the performance of their investments.
- Bullion – perfect for protecting against financial collapse or TEOTWAWKI events.
- Side Hustles – Ideal for those looking to increase their income. Our guide to preparing the sound page can give you more ideas here.
- Invest in yourself – It’s a good idea to invest in learning skills, acquiring resources to survive, or increasing your chances of survival.
- Money is a necessary tool to carry out activities in emergencies and in everyday life. Keeping a cash reserve is a good idea for everyone.
The important thing is that you are not just in one or two, but in most of them. We won’t go into detail about what should be part of your mix – that depends heavily on your financial situation and interests.
Since we are a preparation site, we will only stress the importance of diversification and leave the details to you.
There are many websites and financial resources mentioned in this article that can be helpful, from budgeting to free trade investments:
- Investopedia – ideal for finding out more about investment terms or for quick information, e.g. B. which HYSA has the best rating
- Robin Hood is ideal for trading stocks, cryptocurrencies, ETFs or options for free.
- Mr. Money Mustache is one of the financial freedom blogs par excellence.
- YNAB – You Need a Budget is a simple and effective fee-based budgeting service.
- Mint – Mint is a budgeting and planning tool
- Reddit Personal Finance – Over 14 million members can help answer your specific financial questions.
Financial planning is one of the cornerstones of preparation. Without ordered finances, any emergency or disaster will be extremely difficult to manage. As mentioned earlier, most Americans fall into this category. Simple emergencies have a stressful effect on most people’s finances – but they don’t have to be!
Self-sufficiency is a common goal of preparers, and financial preparation is part of that. If you have to rely too much on others or social safety nets for yourself and your family, you may find yourself in a difficult situation when the SHTF strikes.
Keep your money, pay off your debts, make a budget, don’t buy so many things, chase things when you buy them, invest wisely and diversify your portfolio. Once you master the basics, you will live a much more relaxed and prepared life!
Keep exploring, prepare and be safe.
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frequently asked questions
How much cash must a precursor hold?
Have enough money to cover your living expenses for a month. It’s different for everyone: Some need $3,000 a month to survive, others $10,000.
What should the default setting be?
Checklist for prospective preparers : Supplies – Moon Grinder
How do you prepare for SHTF?
10 Steps to Prepare for the SHTF – Gray Wolf Survival
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