Day 20 National Preparedness Month Challenge – Financial Preparedness
Financial Preparedness – the state of having control of your finances.
Financial Freedom – gaining peace of mind; no more sleepless nights!
We are talking about money today. YOUR MONEY. Do you have control of it? Or does it just do what it wants, stealthily escaping from your pockets and accounts, causing you to worry late at night.
That’s where my family was in 2008 when the market went south. We were already living pretty much paycheck to paycheck and I thought we had control of it. I was even reading some “get control of your debt” books and making small steps in the financial preparedness direction. But I had been living with that uneasy feeling for awhile – you know the one – that my financial house of cards would come crashing down and we would get caught.
And get caught we did. Our additional income stream dried up, the business we had sold on contract came back to us and I had ZERO money in savings! All of a sudden, the “get control of your debt” books were making a lot of sense and we were shocked into action.
A search on Amazon for Financial Preparedness gave me several choices and many voices, almost too many to choose from. I went to the library and checked out all the books I could find. You should pick the program that seems right to you and find the adviser with the “voice” that speaks to you. We decided on Financial Peace University by Dave Ramsey.
No matter which one you choose your program should have the following elements.
A Good Financial Preparedness Plan Will Include:
1. Working with a Simple Monthly Budget (download) – and being nerdy about it. You can only get control of your money once you know where it’s going. We work with a zero budget – every dollar has a name. Download a spreadsheet to get started.
2. Stop using your credit cards and going further into debt. This may seem hard but it’s the only way to get control. We don’t make any purchases now unless we budget and have the actual cash.
3. Put aside $1,000 as an emergency fund. Consider it a buffer against life’s storms. This one piece was magic for me!
4. Make a plan to start paying down your debt. List all of your debts, smallest to largest or highest interest rate to smallest interest rate. It doesn’t matter, just make a plan and begin.
5. Live within your means and look for ways to save money – we all have expenses that can be cut back or eliminated.
(Mostly) Painless Ways to Save $1,000/ Year for Your Emergency Fund
Rome was not built in one day, so don’t expect $1,000 to just pop up in your starter emergency fund overnight – As one wise man once said, “An overnight success is ten years in the making.”
It takes work, focus, and commitment to reach this goal even if you’re neck deep in debt. However, setting aside $1,000 for rainy days is easier than most of us think and it usually implies just tweaking a few things in our lives, like:
- Packing your own lunch. Americans spend $20 per week on takeout or eating out during their lunch break. This tiny habit amounts to a whopping $1,043 a year per person spent just on one’s lunch. You can pack your own lunch (and your kids’ school lunch) and save thousands over one year and you won’t have to worry about putting unhealthy ingredients in your body either.
- Trimming your coffee spending. Americans drink more than 400 million cups of coffee every single day, which translates into $1,410 to $2,008 spent every year by one person just on the dark brew. You can brew your own coffee – yeah it takes getting out of bed 5 to 10 minutes earlier in the morning – and save all that cash for your emergency fund or your kid’s college fund or… you name it!
- Baking your own bread. Yeah at $1, a loaf of bread may not cost that much, but if you’re a big family, the cost adds up. Think about it. A person eats around 80 loaves of bread every year. That means that you could save $80 per year by just baking your own bread. Multiply that sum by the number of your family members (let’s say 4). That will be $320 savings per year, and if your daily bread is more expensive than that, let’s say 2-4 dollars per loaf, that will amount to $640-$1,280 savings per year by just making your own bread.
- Cutting back on soda intake. The average American consumes around 45 gallons of soda per year, which is the equivalent of 470 soda cans. Multiply that number by $0.75 – 1 or whatever the price of a soda can is in your area, and you’ll notice that your family might be spending at least $500-600 on sugary drinks and empty calories per year. Do the math and cut back on soda accordingly.
- Ditching the costly snacks. It is estimated that the average American spend around $10 on snacks every week, which amounts to $480 per year and around $30,000 over a lifetime. Think about all the debt you could be paying off with all that cash. Try swapping the unhealthy, pricey snacks with healthier alternatives like fruit, nuts, or homemade granola bars, and watch your emergency fund grow.
- Further trimming your food bill. You probably got rid of eating out, unhealthy snacks, and soda. But a great deal of your income goes into your food bill and it then ends up in the landfill. Try the zero-waste lifestyle just for a bit, buy only what you and your family would eat, turn your leftovers into delicious and nutritious meals, never grocery shop on an empty stomach, buy in bulk, visit your local farmer’s market (you might find great deals and healthier things than you normally do in your local supermarket), start meal prep, freezer meals are your friend, and so on.
- Taking up the No-Spend Week Challenge. This challenge is designed to help you keep track of your expenditures and become more mindful about your spending habits, along with saving lots of money in the process. You can save more than $1,000 every year by just sticking to this viral challenge.
Look, I’m not asking you to turn into a cheapskate and to spend the rest of your life penny pinching and cutting corners. I’m asking you to start being financially prepared and start working on getting rid of debt starting TODAY.
There’s no use in turning your life upside down and becoming a different person than you are. That would lead only to mounting frustration and defeat n the long run. But I believe you can too achieve financial freedom one small step at a time. And you can do it effortlessly thanks to a phenomenon called “the compound effect.”
So before you start, get some mental preparation. An absolutely must read is Darren Hardy’s “The Compound Effect” to learn about how small, consistent changes can lead to incremental gains in time. As one happy reader put it, big changes happen “slowly, slowly, slowly, . . . SUDDENLY!” Don’t miss this amazing book.
About the ‘No-Spend Week Challenge’
During this challenge, you are supposed to spend absolutely no money on non-essential items over one week. The original challenge was to not spend any money at all over one week, but some people have watered it down and still spent money on essential groceries and gas/ transportation. Both versions of the challenge yield amazing results.
The savings are exceptional. Depending on your weekly spending you can save between $70 and $300 over a month or thousands of dollars a year if you do the challenge every month.
But the greatest part about this challenge is that it makes you more mindful about where your money goes. It is best to keep a journal of the week and to write down the items that tempted you the most during the challenge. See if those items are still important for you after the challenge is over and buy or forget about them accordingly. Keeping track of your budget in the meantime is also a great way to squeeze all the juice out of this challenge.
Why Should You Even Bother Being Financially Prepared?
After all, the world gets along just fine charging whatever it wants, don’t you deserve to have it too?
My reasons for financial preparedness are pretty simple and they keep me sane.
- // It is worth it not to worry about money. If we lose a job, we can still survive.
- // Being self-sufficient is important to me. I do not want to have to rely on the government if we are out of work. Many American’s have no savings and 43.1 percent of Americans do not have enough money saved to even subsist at the poverty level for three months if their income was suddenly cut off. For a large number of Americans, savings is minuscule or non-existent and they are one paycheck or one minor setback from financial disaster.
- // Just like Long Term Food Storage, financial preparedness is a buffer against life’s storms. It is estimated that during the Coronavirus outbreak, the number of Americans that save money jumped from 8% to 33%. a feat not seen in six decades. People are worried about what the future holds, their jobs, and their financial stability. Why wouldn’t you join them?
- // Being financially prepared will cover more disasters than any other preparation you can do – unemployment, car repairs, sickness, hospital, smaller check – all those little things that cause our heart rates to jump when they happen.
- // Financial insecurity is associated with high levels of stress (there will always be that worry running in the back of your mind about your financial woes even if you don’t want to think about it) and increased risk of depression and anxiety. So, why risking your mental health by being financially irresponsible?
- // Financial insecurity is also tied to marital difficulties as money is the number one cause couples fight and the second leading cause of divorce.
- // A lack of financial preparedness doesn’t let you to live your life at its fullest as it eats into your self-worth, your positive view of the world, your energy, and hope for the future. And a society of individuals that feel they can no longer move forward, namely to be better off than their predecessors and helping their kids to do better than them, is doomed to collapse.
After 3 years and with a bunch of hard work, sacrifice and determination, we are now debt free and financially prepared. You can be too!
Related Read: Counting Cupcakes & Financial Preparedness
Today’s Challenge: Get your Financial Preparedness muscles flexing
GOOD: Download the Simple Monthly Budget and fill it out. Make a personal pledge to follow your budget “to the letter” next month.
BETTER: Go online and look at some websites. Get more knowledge about how to get out of debt and have financial freedom. Dave Ramsey, RichDad and the Personal Finance Class at BYU are great places to start.
BEST: List all your debt, EVERY BIT OF IT, from smallest to largest and use one of these financial calculators to make a plan and GET RID OF IT!
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Resources: Financial Preparedness Quiz