Friday, October 10, 2008

Are you ready.....

....if the stock market crash turns into a severe recession? I'm going to indulge my "broken record" habits and remind my "vast" (ha ha) audience of Dave Ramsey's steps to financial freedom. The further you've gone on this, the better you can ride out the crisis, and if you're not very far, it's time to get cracking!

For those too lazy to use the link:

1. $1000 emergency fund in your checking account.

2. Use debt "snowball" to pay off your non-mortgage debt.

3. 3-6 months' expenses in savings.

4. Invest 15% of household income into pre-and-post-tax retirement funds.

5. College money for children.

6. Pay off home early

7. Build wealth and give.

I personally switched #5 and #6 to simplify my finances, but overall, this is a great plan for riding out the ups and downs of the economy. Notice also that if you've got a 15% cushion in the family budget (the retirement funds savings in #4), you're going to do a lot better with an income compromised by recession.

2 comments:

Shaun said...

How can anyone be ready? We don't even know what we are preparing for.

I sure hope we get some good news this week. I was taking a survey last week. .

http://www.friendsoftheuschamber.com/takeaction/index.cfm?ID=33

-- and it made me realize that I think that we are in for some pretty rough times for a coupld of years.

Bike Bubba said...

Shaun, you prepare for bad times by reducing liabilities in good times. You're correct that you cannot completely prepare, but one can at least reduce its impact when problems arise.

Point of reference; my grandfather made it through the Depression quite well using these methods, and actually saved quite a bit during that time. One can make an economic downturn work really well.