31 December 2008

Preparing for the coming year

I was shocked to see a Labor Party politician on the TV news yesterday say that now we've had our retail therapy over Christmas (his words, not mine) we should all go off and book a holiday. I won't be taking his advice, I, instead, thought of how sad it is when people bend and compromise their values for the sake of power. Despite what our politicians tell us, now is not the time to spend. We should all be in squirrel mode with our stockpile of food and some cash savings firmly packed away ready to help us out a bit further down the track.

We're being told that the coming 12 months will be very difficult for the average family. Apparently jobs will be lost, homes will be repossessed and businesses will close. I really feel for anyone who will suffer over this period of time but instead of just doing that, let's try to make the best of it. There are ways to prepare your family for hard times so let's get to it. You have to start NOW - today. The earlier you start with this, the better prepared you'll be.

How quickly you prepare really depends on how much money you have available. If you're like many families now you'll have a limited amount of money that has to cover many different areas. I want you to sit down with your partner and work out a plan. Of course, no one can predict what will happen. There will be some people who feel very secure in their job who will lose it, and others who think they're on the edge and will sail through the year. But everyone needs to prepare because no one knows who will be effected or how bad it will get.

I wrote yesterday that your priorities are to keep your home, feed your family and keep paying off your debts. That applies here too. If you can do those three things and come out of this at the other end, it doesn't matter if you didn't have cable TV for a year or those shoes you like went in and out of fashion without you buying them. When it comes down to it, the frills don't matter and you might discover that living on less is really a great way to live.

But first things first. You need to track your money to see where it's going. My post on that is here. It will take a month of tracking to discover your spending patterns so start that today. Each partner should have a little notebook to record every cent of spending.

And then go through what I listed yesterday. See if you can get cheaper rates for the bills you pay like your phone, internet, insurance etc. Check every bill that comes in to make sure you haven't been overcharged. If you haven't been saving, now is the time to get some money into a savings account. After you've tracked your money you'll probably find some money leaks that you can stop. If you come home with some change in your pocket or purse, grab a jar and put the change in the jar. Start saving your change. A small step, but it will add up over time.

Try to save a small emergency fund so that if something happens during the year, you'll have the cash to pay for it and don't have to put more debt on your credit cards. About $500 would be a good amount to aim for, but that might be too much for some families. Just save as much as you can and set it aside for an emergency. Believe me, it will make you feel better knowing you have that buffer there.

If possible, pay a bit more on your regular mortgage payment, or change from monthly payments to fortnightly. If you can do that while things are still going well, IF your circumstances change, you'll be better off. Stop using your credit cards, pay for everything in cash but continue to pay off your credit cards. Now is not the time to spend. If you can, live off one income and use the second income for the emergency fund and for debt payments.

If you haven't started a stockpile yet, now is the ideal time to do it. My posts on how to build a stockpile are here and here. Southhavenjen and Tracy asked in the comments yesterday about Aldi food miles. This will vary in most countries, what happens here will be different to what happens in the UK or USA. I deal with that like this: we buy mainly Australian products at Aldi. The exceptions being tinned salmon from Alaska and Italian parmesan cheese. We buy the rest of our products from our local IGA (independent grocer) and our bulk food store. We haven't shopped at Woolworths or Coles (our main supermarkets) for many years now but I'm told by my friends that they are stocking a lot of imported foods now. I wholeheartedly agree with Tracy's comment about not buying imported products and I have written in the past about how we should be building our own clothing, shoe and whitegoods factories and not sending our money overseas. But I believe, at least here in my state, that you can buy a lot of your groceries at Aldi, as long as you take the time to pick and choose local products.

So, the important points today are to:
  • stop spending on non-essentials,
  • track you money,
  • start saving an emergency fund,
  • increase payments on your mortgage and credit card debts,
  • start a grocery stock pile.
Most of you know that Hanno and I have no debt. We are currently living on $300 a week, and we save $100 a week into a savings account. That $300 allows us to live well, we have private health insurance and generally we are able to do what we want to do. I guess people might think of us as poor, but that doesn't worry us. We live according to our values, we can do whatever we want to most days and we have the kind of productive work here at home that makes each day feel worthwhile.

What I'm trying to say is that cutting back and living through tough times isn't all bad. It can be the start of a new way of living for you. You can gain great satisfaction out of providing for your family by changing how you save, shop and cook. I am old enough to remember when everyone lived as Hanno and I live now. The past 50 years has brought us some wonderful things, but it's also taken so much away. So don't worry if you feel you're getting back to the way your granny lived, I'm here to tell you you will gain a lot from those old ways of doing things and you'll save money in the process.

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