Economic Survival Tips

The following economic survival tips are for tough times like those that we are (hopefully) getting past as I write this is 2011. But the suggestions here can also help you at any time. Even when the economy is humming along and unemployment is low there are always financial troubles that can arise in our personal lives, and we need to be prepared.

One of the best ways to be prepared is to have money set aside. Create a fund that will carry you through any tough times. If you have six month's wages set aside in the bank you can still pay the bills even if you lose a job or need time off to care for a loved one or for whatever reason you lose your income temporarily. What if you don't have any extra money to create that fund? See the next tip.

Live on less than you make. However tight things are for you at the moment, there are people around you who are living with less income. That suggests that there might be ways to cut your expenses in order to free up some money to set aside. If you can make more money, that helps too. Either way, you should try to live on no more than 80% or 90% of what you have coming in, so you can use the rest to provide for your economic survival under any circumstances.

Limit your fixed expenses. It is great if you can live on less than you make, but what if you make even less at some point? For example, you might be taking home $55,000 annually and spending only $48,000 of that. This allows you to save $7,000 each year - a great idea - but what if you lose your job and for years to come the best you can do is jobs that net you only $35,000 annually? You might be in trouble.

It's great if you have saved for events like this. But the money you have saved will eventually run out if your lifestyle requires $13,000 more than you make each year. The other art of protecting yourself then, is to be able to cut your expenses. All of us can do that to some extent if we have to, but how much you can cut and how fast depends on the kinds of expenses that you have. It is tough to quickly dump a $500 monthly car payment when you owe $18,000 on a car worth $15,000.

The key here is to keep your fixed expenses as low as you can. That is one of the primary ways you can assure your economic survival. Consider two scenarios. In the first, a family with a large income saves money regularly and spends only 80% of what they make. But that 80% includes large fixed expenses like car payments and a mortgage payment that eats up 30% of the pay by itself. In the second scenario, a family with a lower income spend all of what they make and save little. However, they have paid off their home and buy cars only for cash, and otherwise have very low fixed expenses. Most of what they spend is discretionary, going to things like eating out, vacations and movies.

Now, suppose both families have their income cut in half for the next five years. Who will do better? Even though the first family saves money and spends less than they make, they are in deep trouble because they cannot easily cut their expenses down to match their income. The second family, though generally irresponsible, did one thing right. They kept their fixed expenses low. They can cut out the vacations and movies and such and live on their new lower income.

Your economic survival plan: Keep fixed expenses low, spend less than you make, and set aside money to cover all expenses in rough times.

Source: http://ezinearticles.com/6196486

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