Prepping is getting ready for what might happen in the future. It’s been said that the most likely disaster is one that happens to just you, locally. A financial disaster is one of those things that can happen some random afternoon, when you get called into the boss’s office and are laid off. It could also be a market crash that decimates the stock exchanges of the world, plummeting us into chaos.
The point is that a financial collapse can happen in a lot of different levels.
Level 1: An Unexpected Bill
It seems that in life when you are just getting ahead, the universe conspires to get in the way. A great case in point is an unexpected bill. I recently was doing some maintenance on my car when I noticed that treads were getting worn down a good bit, which I though I had another 10,000 miles to go on them.
When I priced it out, I was surprised that the tires for my car were pretty pricey, coming to a grand total of $800! Luckily I had cash on hand for just these types of things, because I know that life throws some surprises at you. Think back what I should do is work into my budget a line for these things, maybe $30 a month to go to car maintenance items.
Level 2: A Job Loss
Job loss is one of those things that most people will experience in their lives or their spouse will. It’s a pretty common occurrence and it can take some time to find a new job. The average unemployed person is job seeking for 13.1 weeks and in recessions, an average of 27 weeks. If you are the sole bread winner in your house hold or you live pay check to paycheck even when others work in your home, this could spell disaster.
Think about what steps you can take to be able to weather the storm for those 13 weeks of going without a paycheck. Typically that means keeping 3-6 months of living expenses saved up for emergencies. Read our post on how getting out of debt should be your number one prep and I also go into the steps to get financially prepared.
Level 3: Economic Recession
A recession is defined as “a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a
fall in GDP in two successive quarter” Basically it’s when things are getting bad, but after about a year or so they will come back. These typically happen ever 5-8 years.
The likelihood of a layoff, business closing or a reduction in workforce is very high in this period. Typically unemployment rises from around 4% to 10%-15% so it’s important to guard against personal job loss. It also means that interests rates often rise, inflation might grow and any financial assets you have might loose value. It’s important to think about how a shrinking economy or one that isn’t doing very well might impact you.
Level 4: Economic Depression
The line between a recession and depression is somewhat murky, but often a depression is much longer and often harder hitting. Typically GPD will drop by more than 10% and in some cases as much as 30%. In these instances things are very dire and the economy is dramatically depressed. Jobs loss will jump to 25% unemployment rate and those people will take a very long time to find a new job.
To put it in perspective, the great depression lasted close to 9 years, in which soup kitchens, waiting in line for bread and taking drastic actions just to earn enough to put food on the table. While the economy did eventually did recover, many were left shaken for the rest of their lives.
Level 5: Total Collapse
A total collapse is “A complete breakdown of a national, regional or territorial economy. An economic collapse is essentially a severe version of an economic depression, where an economy is in complete distress for months, years or possibly even decades.” This is the worst case scenario where money becomes useless, jobs go away, businesses shutter and common trade halts.
We’ll revert to bartering, having to defend ourselves because local governments will fail and many of the things we enjoy today will go away. Preparing for such an event is a tall order, but we can take steps to prepare ourselves, focusing on both food to eat at the beginning, buying us time to start growing all our own food.
Having barter items will be a huge boon for you if you’re able to have some things on hand. Also consider items that you can grow in number: rabbits, chickens, seeds, or fruit/starches to make alcohols.
Start with the most likely
We tend to jump to the largest disasters, but in true we need to be thinking about what is more likely to happen. What is important to realize is that as we prepare for the most likely and the shortest timeline, we are still working towards the largest disasters too. They aren’t mutually exclusive.
Once you feel like you have covered you bases for a short term level one disaster, think about how it could all go wrong. What are you points of weaknesses? Where are the plans you made not redundant? How can you increase your resiliency and be able to take shocks to the system better?
Think about these items and take care to prepare.