Let’s start by summarizing the mayhem that we’ve seen over the last few weeks:
1. Republicans and Democrats in Congress put their own political futures ahead of the best interests of the country (once again) before finally agreeing on an incomplete deal to raise the debt ceiling and cut spending.
2. The stock market dropped over 12%.
3. And finally, S&P cut the U.S. governments credit rating from AAA to AA+ (on a Friday after the markets were closed no less). This is the first downgrade ever for the U.S. in history.
4. Oh, and Europe is becoming more insolvent if anyone cares…
What Does the U.S. Credit Rating Cut Mean?
It basically means that S&P, a credit rating agency, has slightly downgraded our government’s ability to repay its debts. The U.S. had a AAA rating, the highest offered, but it was cut to AA+. .
Some are already claiming that the impact of the credit downgrade will be:
■An increase on the interest rates the U.S. pays on its debts – resulting in an estimated $75 billion annual increase in payments
■Increase in consumer interest rates – mortgages, auto, credit cards, etc.
■The stock market tanking
■A further slowdown in the American economy
It remains to be seen whether those things will actually happen, but regardless, we’re heading into some murky waters. I’m not here to place blame (on Wall St. bankers and greedy mortgage providers) or tell you what to do with your investments (dig a hole in the back yard). Rather, I want to focus on what you, me, and the common folk of this fine country (turned steaming pile) can do to protect and even thrive in troubling times (apocalypse). Here’s a list to start.
1. Budget as if You’ve Already Lost your Job
Relax, I’m not saying you’re going to lose your job. But I do think you would be wise to start planning as if you are going to.
Why? Who knows how employers are going to react to the latest developments. This is an unprecedented age of employee and employer disloyalty. But as we saw during the last recession, they are rather quick and brutal in making personnel cuts to maintain profitability. Do you want to be held prisoner by someone looking to pad or keep their multi-million dollar year-end bonus?
Taking budgetary steps now to diminish that threat can only be good for you. You’ll start saving more and you’ll have less stress about what is out of your control. Budgeting puts you back in control. You can start doing this by working on the budgeting spreadsheet that I personally created and use.
2. Pad your Emergency Fund
An emergency savings fund is meant to mitigate a negative financial event like job loss or medical emergency. At a minimum, you should plan on having 6-9 months of living expenses set aside and easily moveable, if needed. That may sound difficult, but the payoff in peace of mind is worth it.
3. Plan your Next Career
If you love your career and see no potential for job loss, smile and be happy. However, if you’re in a declining industry or geographically tied to a particular area and there aren’t many alternatives to your current employer, start thinking about your next career.
Job security has little to do with performance, and much more to do with economic forces, communication, locale, and a scarce skill set. Doing what you are going to be passionate about is key, but these 4 factors are next in line.
If the unthinkable does happen, and you lose your job, you already have a plan for your next move – whether that’s an apprenticeship, school (bitterly avoid more student debt), moving, or building a network.
4. Build Multiple Income Streams
Focusing on growing multiple income streams is the buzz strategy of the last few years in the personal finance world. But there’s good reason. It offers stability, peace of mind, hope, and can allow you save above normal means if it’s in addition to a full-time gig.
Figure out what your marketable hobbies are and start exploring a little. One of my colleagues started making and selling jewelry on Etsy her store became so popular that she ended up quitting her job to pursue it full-time when she started making more income than through her day job.
5. Start Scaling Back your Consumption
Maybe this should have been #1 on the list. I personally think we are at the very beginning of a prolonged recession. The economy could only expand so far on inflated housing values, consumer debt, government debt, technology, and cheap oil for so long.
Instead of accepting that reality, we fight it with even more debt and problems. We treat the symptoms, but not the cause. Those who start embracing a simpler life with less consumption are going to thrive.
Instead of buying more stuff, enjoy the stuff you have. And if you don’t enjoy the stuff you have, sell it and use the money to pay off your debts.
1.Do you think we are heading for very troubled economic times?
2.How are you preparing?