Sunday, October 11, 2009

America down the gurgler & how you can survive

The US is still struggling despite its massive government stimulus. A few statistics that I read today, totally stunned me. It's always important though, to take a step back and evaluate the fact that the US population is approximately 300 million and although the numbers are stunning, it's also relative to population size.

In September, a further 263,000 jobs were lost according to the official numbers from the US Department of Labour. This led to a 26 year high unemployment rate of 9.8%. Around 2.7 million people lost their jobs since this economic credit crunch 'crisis' began and a total of 15.1 million people in the US are looking for work.

Australia's population is approximately 20 million people. The mind boggles. If that unemployment statistic was in Australia, we would have 3 out of every 4 in our population looking for work. Not that 9.8% US unemployment rate isn't crazy. That's about 1 out of 10 people living in the US that is looking for work and either spending down their savings or racking up debt in order to survive, relying on unemployment benefits or food stamps (in the US only, Australia does not have a food stamp system).

It really is a bit too late to prepare for the crisis and start saving when we're in the midst of the crisis. The best time to prepare is obviously before the downturn and before the economy hit the skids but as usual, the savings ratio in the US and Australia were negative until the crisis hit. As people have found out the hard way, it's too late to build the house on stilts when the flood water rises... and it's too late to save when the economy heads downward.

If you find yourself in a perilous situation, a few pointers to consider are: evaluate all your debts versus your savings. How long can you survive if you lost your job today. How long can you keep paying your bills? How long before you can find a new job? If you expect it to take four months to find a replacement job, then your savings will have to sustain at least four months of living expenses. If you build your emergency fund on that basis, then you will need at least five months of living expenses saved up.

Preparing for redundancy -

1) C.V: Job search adverts, cover letters, networking, recruitment agencies, newspapers, websites of potential employers, some ex-employers may provide assistance with job search if there's been mass redundancies

2) Financials: Assets, liabilities, loans, savings, investments, redundancy packages, if you have any income protection insurances
3) Government support: Unemployment benefits, rebates, charity assistance, food, housing, utility programs etc (google Centrelink and visit them)

4) Support:From family & friends

If your employment status is shaky, it's best to start building your defenses now
than burying your head in the sand. Cut out any expenditure that is not a need, that is irrelevant to your daily existence, and earmark those funds to be your emergency fund (EF). Be as strict as you can with yourself so that you can build a cushion for future rental/mortgage/loan/utilities and other bills.

Update your C.V and get ready to look for a new position should the axe falls. Investigate opportunities where you can start your own business if that's a valid option for you. Check up on unemployment benefits that you may qualify for. Organise your loans and bills to see what you need to prioritise. Start selling anything that you don't need around the house on Craigslist or on ebay right now, don't wait until it's too late. Rent out that spare room now rather than later and use that to stockpile your EF.

Check your rent contract and see if you can downsize your rental expense now and not when you're suddenly unemployed.

Plan for any extreme pessimistic situations where you will have to sell your house or car if you can't pay the mortgage. Last thing you want to do is completely erode any equity you have built in your house and be forced to sell by the bank as a firesale foreclosure. The banks aren't looking after your best interest. Same with the car loan.

The last place you want to be is to start making decisions when you're in an irrational state of mind or in a panic. It's better to be pro-active than re-active.

If you're in Australia and your job is on shaky grounds. You need to consult an accountant or a financial planner about what to do and how to split your redundancy packet if you're eligible for one. You may be advised to contribute extra to super, to keep some on hand as an EF or to pay down some debts, depending on your own financial situation. Also, check with Centrelink to see if you are eligible for any government assistance and hand outs.

If you've made extra repayments on your mortgage, you need to check if your bank will let you take a 'repayment holiday', switch to 'interest only' or you may qualify for the hardship provisions. Checking up with your bank today is the best way to handle things. Don't wait until it's too late.

I've seen some very interesting threads on some forums where some people have bought dry goods and cans to stock up. They've bought up to five years worth of non perishable groceries, even bought guns and a cheap farm so that they're self

All this effort, in preparation for the super inflation that they believe will follow in the near future. None of us can see into the future. We can prepare for the future to the best of our abilities, but we really cannot predict the future with any extreme certainty. I don't recommend buying five years worth of non perishables because I can definitely predict that if you do that, you'll end up having to force yourself to eat 50 cans of beans, corn and tomatoes(not to mention all the other stuff that you've stocked your pantry with) before they all expire in one big batch.

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