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“The sky is falling! The sky is falling!” That sounds just like what all the media people are telling us these days. “Recession! Recession!” Calm down, Chicken Little! The sky is not falling. Everything will be okay. Though the economy has slowed, it's no reason to completely freak out and think the world is going to collapse. Don't let the talking heads on the nightly news cause you to freak out about the economy. If you let your emotions dictate your actions, you're going to be broke your whole life.
Regardless of the condition of the national economy, it's a must that you take a look at your own personal economy. To prepare yourself and your family so that you'll hardly notice when the national economy or your household economy faces potential setbacks, consider these three beginning points: 1. Baby Step 1: $1,000 Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They're going to happen. It's just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time.
2. Baby Step 2: The Debt Snowball
Focus on one thing at a time. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan.
3. Baby Step 3: Fully Funded Emergency Fund
What would it take for you to live for 3 to 6 months if you lost your income? Your answer to that question is how much you should save. This stash of money is not an investment; it is insurance you're paying to yourself, a buffer between you and life. Remember, your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won't feel it. If you have a plan, live on less than you make, and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! There's no time like the present to get started! It's a plan that works every time!
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