Here at Team Richard Ferrone, we are working hard through a pile of returns for our Salt Lake City tax clients, both from extensions and for corporate filings (due tomorrow, 9/15, as I sit down to write this on Monday morning!) — but that doesn’t mean I won’t carve out the time to write a blogpost for my Salt Lake City area (and beyond!) friends.
First of all, we should all be mindful that the current economic situation may not last, perhaps for ill. Here’s a somewhat technical walk-through.
If and when the Federal Reserve raises interest rates, it will be very … interesting to see what happens in the markets, and here in Salt Lake City. And, as 2008/9 reminded us, this doesn’t simply affect investors, but has implications for all of us.
I can’t recommend a specific course of action in this post for a variety of reasons, but nonetheless, it’s something to be aware of.
I do NOT recommend giving into fear.
Instead, as I’ve recommended in the past during times of tumult, it’s a time to take positive action and make a few positive steps towards shoring up your family’s finances, whatever state in which you find them today.
So, in that light, I have some thoughts for you today.
Ferrone’s 6-Step Plan For Preparing For A Financial Emergency
“Life is either a daring adventure or nothing. To keep our faces toward change and behave like free spirits in the presence of fate is strength undefeatable.” – Helen Keller
The peak of the September hurricane season has been remarkably quiet.
“As we reach the historical peak of the Atlantic hurricane season, there are no active hurricanes in the Atlantic or the Pacific basins.” (Source)
That’s great news for many on the Eastern seaboard.
However, there are other storms that can be seen on the horizon. And this is ALWAYS the case, regardless of the world economic outlook — because for every Jane Smith here in the Salt Lake City area (or anywhere else) who has shored up her finances for whatever may come, there is a John Smith next door who has not.
And, of course, nothing is ever *truly* fully within our control. It’s a falsity that we could ever create a hermetically-sealed financial boat, completely impervious to any outside factors. Even if you were to convert everything to cash and gold, these currencies are subject to the vicissitudes of market fluctuations. Even raw goods (always handy in a real crisis) can fail us.
That said, it does, indeed, pay to be prepared.
Here’s the first step for my Salt Lake City clients and friends: Watch your mindset.Were the market to collapse overnight, how would you carry your heart? Where would you place your ultimate security? It’s helpful to realize that no matter what may come, there are certain things — family, relationships, eternal matters — that will NEVER be shaken by mere circumstance. Remembering this deeper truth will help you through whatever might come.
Second, ensure you have some small amount of ready cash available. I recommend having $1,000 in some capacity, whether in cash in a safe place in your home, or in an account that provides you immediate access. This should be the case,no matter what kind of debt you are carrying. “Paying yourself first” means preparing for any kind of emergency, and this is a very helpful buffer. Only access it in a true financial emergency.
Third, kill your credit card debt — forever. There are loads of articles out there, from Dave Ramsey to Suze Orman (yes, they run across the philosophical spectrum) on the proper step-by-step plan for this, so I won’t rehash that here. Needless to say, this is an important first step … and it will help you face whatever might come, without starting from a major hole. And it leads to the fourth:
Adjust your monthly cashflow. Ideally, you’ll be able to create a budget under which you can live off approximately 65% of your take-home pay each month. After all, the biggest difference between the wealthy and the working poor is much less about the money they bring home … it is more about the money they keep. Live off that 65, then send 10 percent to long-term savings for big purchases, 10 percent to retirement accounts, 5% to taxable savings … and make room to be able to give at least 10 percent to charitable sources. This will help your mindset AND, of course, will enable you to be a source of supply for those who are in need.
Automate an investment strategy. With that money that you are peeling away for retirement and other savings, find a strategy that has enough diversity for the purposes of safety but which is still angled towards growth. And AUTOMATE the contributions so you aren’t “deciding” each month to send it where it should go.
Lastly … well, you’re ready for an emergency. And you can mobilize what you need if (rather, when) something unpredictable strikes your family or the broader economy. You’ll also be able to see whether your budgets and plans held up under pressure, and be able to adjust accordingly for the future.
As I look back over this post, I’m realizing that this can even serve as a step-by-step plan for your financial growth. For a variety of reasons, each person’s actual strategies within each step might vary, and there is a lot of hard work required in between each step. But it’s a battle worth fighting NOW, and I recommend that you train yourself up for it.
Again, I welcome your thoughts …
Warmly (and until next week),
Ferrone & Associates CPAs