Seven Ways To Reduce Your Financial Vulnerability

Hey Folks,

Lets face it, the American economy is having a rough time.  Economic grown is slow to the point that the Federal Reserve has recently taken steps to lower interest rates (1).  The average household has lost something like 40% of its net worth since 2008 (2) and real incomes are down across the board (3).

If you’re reading this blog, you care about your financial health, so here are some things you can do to reduce your vulnerability to economic shocks.

1. Gauge the willingness of your family and friends to lend you money.   Family support in case of economic calamity is a classic fallback.  Spouses support each other in the event of joblessness and parents often support their children in starting a business or getting out of debt.
2. Consider selling your collections.  Some goods can be easily transformed into cash, these include firearms, precious metals, stamps, good jewelry, furs and vehicles).  Also, take the time to sell your collections at the highest price possible.  A lot of dealers will want to give you a price substantially below retail – usually something between 60 and 80% of the market value of your goods.  If you are selling something valuable like a classic car, or a several vintage firearms, it pays to be sure you’re getting the most the market will bear, so take time to research how valuable your collection is and the best way to sell it.
3. Get cash value life insurance.  Cash value insurance policies are interesting.  Although their value as investments is debatable, you can borrow against them.
4. Start a side business or get a second job.  Everyone recommends this, but doing extra work in your spare time is a good way to generate some extra money – it works.
5. Put your spouse or children to work.  Since this blog is for DINKs, you may not have any children, but if you do, once they are teenagers, it is reasonable to expect that they get a job.  Also, if your spouse stays at home and isn’t working, you might consider asking him or her to get into the labor force.
6. Stay positive.  Hard economic times can be a major bummer.  But that said, most people who have a positive attitude also tend to have better behavioral outcomes (like more money, a happier lifestyle, better health, etc.)  People who have higher self-efficacy also tend to be richer (4, 5).  So, if you want to preserve your wealth and bounce back from hardship, keep up the positive attitude.
7. Maintain a cash reserve.  This is a bit of a no-brainer, but cash is king.  You need it to cushion periods of financial stress.  For example, if you get laid off or have your hours cut at work, you’ll need the cash to cover your expenses.  More importantly, having cash reduces family friction and reduces stress in other parts of your life.  Financial downturns are always stressful to a DINKs relationship, but having a cash reserve can take the edge off any conflict.  So, the bottom line is that cash is good for paying your expenses while you look for new revenue and for de-stressing your relationship.

So, the bottom line here is that even if your financial situation is poor, there are lots of ways to reduce your economic vulnerability.

Best,

James

James Hendrickson

James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.