Wednesday, December 12, 2012 5:52 pm
6 tips on how to weather a financial apocalypse
By ALEX VEIGAAP Business Writer
One gambling website, MyTopSportsbooks.com, puts the odds of the world ending on Dec. 21 at 300 million to 1. But that's not keeping some believers from stockpiling food and preparing to flee urban areas.
Whether you fall into that camp or are decidedly more skeptical, being prepared to ride out everything from a worldwide cataclysm to the aftermath of a hurricane begins with getting one's finances in order.
"Before the disaster strikes is the time to start getting prepared, in terms of financially getting yourself out of debt and establishing some savings and supplies," says Arthur Bradley, a NASA engineer and author of the "Handbook to Practical Disaster Preparedness for the Family."
But clearing out the liabilities on one's personal balance sheet is only the beginning.
A severe-enough calamity could render the banking system inaccessible, something for which many Americans aren't prepared, says certified financial planner Louis Scatigna.
Scatigna, who lives in Jackson, N.J., saw firsthand what that could be like after Superstorm Sandy left much of the Jersey Shore without power for weeks, effectively shutting down ATMs, many stores and gas stations.
"It was a real good dry run for something that could be substantially bigger in the future," Scatigna says.
Here are six tips on how to prepare financially to make it through the next major disaster, short of the world coming to an end:
1. KEEP CASH AT HOME
In a severe economic disruption, access to credit or investments may not be available. Stocks may suddenly drop in value. Lenders may reduce or eliminate credit lines overnight, as many borrowers discovered in the aftermath of the 2008 financial crisis.
"Your money is just bytes in a computer," Scatigna says. "It's very, very important for people to have cash on hand."
How much? That's an individual choice. Bradley recommends $1,000, in $20 bills, so that it's easy to make change.
2. GET OUT OF DEBT AND BEEF UP SAVINGS
A mortgage, car payments, credit cards, medical bills - they all limit the amount of money one can set aside for an emergency, whether it be a job loss or something worse. Start by slashing credit card debt and only use plastic if you're going to pay off the bill each month.
Bradley recommends gradually setting aside enough money to cover all expenses for six months. That cushion can be a life-saver if you lose your job and end up being unemployed for several months, as it typically takes far longer for people who have been out of work for six months or more to find another job. About 40 percent of all jobless workers are so-called long-term unemployed, according to the Bureau of Labor Statistics.
Having trouble saving money? Cut down on expenses like dining out, brown bag your lunch at work and use coupons.
3. STASH SOME GOLD AND SILVER
Many investors have put their money in precious metals in recent years as a hedge against the declining value of the dollar. When the value of the dollar declines, gold prices rise.
That's fine as an investment, but in the event of a major financial crisis, experts say it might be difficult to cash that in.
So they advise that anyone who is very concerned that the dollar could decline dramatically look into owning some actual gold and silver.
The coins can be purchased from many dealers, but expect to pay a 6 percent premium on gold coins and a 10 percent markup on silver coins, Scatigna says.
Also, it's important to have a mix of gold and silver coins because, in the event of a dire emergency, silver coins can be traded for less expensive items.
4. SET ASIDE SOME ITEMS FOR BARTERING
Take stock of items around your home that could be valuable to others in an emergency situation.
These can include goods like food, water and medicine, and also liquor, coffee, chocolate, candles and batteries. In the aftermath of a severe storm, you may be able to barter for necessary goods and services.
5. BUY SUPPLIES NOW, OR PAY A LOT MORE LATER
Ask anyone in the aftermath of a hurricane how much a bottle of water or a gallon of gas cost. Disasters drive demand and prices for critical goods higher. So the best way to save money is to prepare well in advance, but gradually.
Scatigna sees purchasing supplies like a filter to purify water as an investment, particularly at a time when savings accounts are earning little or no interest.
He also recommends buying extra cans of food each trip to the grocery store.
"Converting assets that will do nothing for you in a super crisis into real assets that will sustain you is the smartest thing people can do with their money if they believe that the future is going to be volatile," Scatigna says.
6. KEEP END-OF-THE-WORLD CONCERNS IN PERSPECTIVE
Perhaps the best way to be prepared for the worst is to remain grounded about end-of-the-world scenarios.
The biggest disaster many are likely to face would be the loss of a job. And many workers who fear the automatic government spending cuts from the fiscal cliff may feel their anxiety rising.
So evaluate your savings and have your records in order. If the time comes, you'll be able to determine which expenses you can cut quickly.
And be wary of locking up too much of your money in illiquid investments if you're concerned about your job.