Recovering from the Government Shutdown

The country’s financial crisis could be blamed on several people but let’s not dwell on that.  As individuals we must take accountability for our actions. We spend the most money per person/family than all the others countries in the world.  We have become so obsessed with things and using credit that we have become addicted to shopping. 

What happened to the days when you only purchased items that you could afford?  These are the things are parents and grand-parents are familiar with. If you wanted to buy a home you had to save your money for a down payment and have a really good credit score otherwise you would be quickly escorted out the doors of the bank for wasting their time.  

It is disappointing that a catastrophic event like the recession and most recently the government shutdown had to occur to bring the country back to reality.  Unfortunately, some Americans are still in denial about their financial situation and are holding on for dear life to their “things”.  These “things” have no real value and losing “things” should not make you feel sad, depressed or angry. Losing “things” should teach you a valuable lesson – things have no value.  

There is a national movement called Voluntary Simplicity. The movement follows a basic principle - the only new things you buy are things you need, i.e. food, clothing (not designer clothing or designer shoes), and shelter (only enough for you or your family).  All other things are seen as luxuries which have to be stored, cared for, and maintained.  If you no longer had these things, how much more money would you have, how much more time would you have to spend with your family, enjoy your favorite hobby or give back to your community.  If you no longer had these things, how much more would you reduce your carbon footprint?  How different would your life be if the only new things you buy are things you need?

No matter what method you choose to change your lifestyle and spending habits you must make a permanent change when you are facing a financial crisis and to prevent future crises.  Here are 5 ways to ensure you can survive a financial crisis.

Live below your means. 

This means if you don’t have the money to buy something you don’t buy it. It also means, even if you do have the money to buy something do you really need to buy or do you just want it because you can buy it.  What will be the value of the item after you buy it, will it increase or decrease in value, can you sell it to make a profit, will buying this item enrich your life and just add to the collection of things you already own. 

Create a budget.  

A budget is a spending plan that shows how you spend your money. A spending plan identifies what you spend, what you earn and what you owe.  Once you know where you money is going, it is much easier to track your spending and see if there are any areas where you can cut back.  Subtract your total monthly income from your total monthly expenses and if you have a negative value or less than 5% of your income you are in serious financial trouble and need to change your spending habits quickly.

Downsize.

If you live in a home that has extra rooms – rooms that are never used, lots of extra space and spend a lot of money in utility bills, or if you own a luxury car or mid-sized car that costs more than $20,000 you need to downsize.  Trade in your car for a cheaper car with a smaller car note or buy a used car.  Rent out a room in your home to get extra money to pay down debt or pay for necessary expenses. 

Reduce spending.

Reduce expenses by buying in bulk, using coupons, buying only items that you need, or shopping at discount stores like Costco, Target, Wal-Mart or Walgreens. If you drink Starbucks coffee 5 days a week reduce it to 2 or 3 days a week. If you go to the barber or hair salon every week, start going every 2 weeks.  All of these little things add up and will make a difference in your spending plan.

Live for Tomorrow. 

Stop living day by day, paycheck by paycheck and plan for your future. If you don’t already have a retirement account get one. If you don’t have life insurance buy one as soon as possible.  Contact a financial advisor to make sure you finances are in order and protected.  Living below your means and planning for your future make it easier to live for tomorrow.  Ask yourself what do you want to be doing in the next 5 to 10 years, and then develop a plan to ensure you can achieve these things.