How You Can Survive the Economic Crisis
First Published: Oct 30, 2008 ADawnJournal.com
In light of the recent global financial meltdown, it is imperative that I write a post on how to survive this financial nightmare. The good old days of 2007 are but a memory now and all we can do is to hope that this nightmare will be over soon. In the meantime, here is what you can do to survive the current volatility:
1. Protect Your Job – Stay put with your current job. A new job is a lot harder to find in a financial crisis like this. Give your boss more than you are required to do on a daily basis; volunteer on a new project, volunteer to stay on some extra hours when required, etc.
2. Have an Emergency Fund – I recommend setting aside at least six months expenses in a separate account. You should never touch this account unless you lose your regular job or your regular monthly income stops flowing in. If you don’t have an emergency fund, start building it now. This is something you need to do only once in your lifetime.
3. Reduce Your Debt – When you have debt, you are no longer in control of your life. You are instead working hard to pay interests to your financial institutions. If you lose your job, you will be in a more high-risk position than someone who does not have any debt. Stop borrowing more money and concentrate on paying off your existing debts.
4. Reduce Your Expenses – Do you really need to have five features on your cell phone that you never use or one thousand cable channels that you never watch? When was the last time you visited your gym? Although your gym membership fees are still appearing every month on your bill, do you go? If you can reduce you expenses here and there for small amounts, it will all add up and turn into a large amount at the end of each month.
5. Have An Additional Income Flow – Start looking into generating a second income. You can earn additional money on top of your regular nine-to-five job by starting an ebusiness, writing a book, starting a blog, doing a part-time job, starting a home business, etc. I earn additional money from Invest Now and from A Dawn Journal. It’s always good to have a secondary income source and keep increasing it gradually so one day you will earn enough money to quit your traditional nine-to-five-job. Read ADJ regularly to learn more on this.
6. Continue Automatic Saving Plan – If you are saving automatically from your paycheck or bank account, there is no need to stop it. Continue your long term saving plans. One major mistake we always make in market turmoil is that we stop putting money aside and end up spending this extra money. When conditions return to normal, the automatic saving plan you stopped never gets started again.
7. Learn To Invest – If you are not familiar with investments, learn how to invest. Asking you to learn investments may sound conflicting in a financial crisis like the one we are going through now, but don’t make the mistake of staying away from investments. There will always be volatility in the market, but when it comes to achieving long-term goals nothing beats the stock market. Research has shown that the stock market has averaged an annual 11% rate of return over the last 120 years. Cash has managed to return only 4% annually for the same 120 years. You may be surprised to know that stock markets actually have outperformed home values by a considerable margin in the long run. Stay invested for the long run—through good and bad times, through market ups and downs. Take a few courses, read investment sites, blogs, and financial books to increase your knowledge. In Invest Now, I discussed how anyone can start investing with $25, and I also provided lots of tools to realize your financial goals.
8. Live A Simple Life – Simplify your life—live rich, live longer. It’s that simple. Do you really need that latest iPhone, HD Plasma TV, BMW, and gigantic house? We spend our precious life energy on the weekdays to earn money so we can spend it on the weekends. We work to pay our daily expenses, but we end up spending more than we make on things we do not need. So we go back to work to get money to pay interest on money we’ve already overspent. Stop using credit cards, live within your limits, help other people, and donate to charity whenever possible .
9. Diversify, Diversify, Diversify – The old adage “Don’t put all your eggs in one basket” is still true to this day. Regardless of market conditions, some sectors will always go up and some will always go down. Try to spread out your investments across different sectors such as index funds investing across a variety of businesses, cash, real estate, bonds, cash, natural resources, and so on.
10. Relax: Don’t Panic – Relax—this is not the end of the world. Avoid unnecessary risks by not making panic-filled emotional decisions. We survived the Great Depression , the 1970s oil shock, the 1980s crash, the 2000 tech crash, and we will survive the 2008 meltdown as well.