Of all the possible disasters that one can face, probably one of the most common is a personal financial crisis. Most of us will pass through one of these at least some time in our lives (maybe more than one); whether due to job loss, a major medical emergency, wrecking a car or necessary repairs to our home. But those are just on a personal level. We also have the possibility of passing through a more widespread financial collapse or just suffer the results of a major natural disaster.
The people who lived through Hurricane Katrina and Superstorm Sandy weren't out of the woods when the rain stopped falling and the wind stopped blowing. For many, the aftermath of the storm was worse than the storm itself, as they tried to pick their lives back up and put them together. Without significant financial resources to use, most were dependent on the government's largess, which really only extended to temporary relief.
Homeowner's insurance should theoretically have helped those people, but many of them didn't have any. There is no legal requirement to have renter's insurance, and few can afford it. While those with homeowner's insurance were better off than renters without any insurance, few had enough insurance to fully cover their loss.
When you consider the fact that most people live paycheck to paycheck, the risk of a financial crisis and the difficulty in dealing with it are more than most people can handle. Yet, of all the numerous scenarios we prepare ourselves for, few bother to prepare themselves for any sort of financial calamity.
What does this ultimately mean? It means that no matter how well we do in surviving a disaster and its aftermath, we are destined to suffer. Our lifestyle after the disaster will have little chance of returning to the standards we were used to living, before the disaster struck. While we may survive, we will still lose.
One thing we seldom discuss in the prepping and surviving circles is the time after the disaster and its recovery. The farthest we tend to look is the recovery period itself. Yet, full recovery should include returning to a life that is at least as good as the one we had before the disaster hit, even if it is different in its details. This can't happen, unless we are prepared for it.
Investing for the "After"
Regardless of the disaster that comes, there will be a time when the disaster and its effects are over. Even the worst of disasters will eventually end, returning us to a "new normal" if it can't return us to the normal life we knew before the disaster. Even an EMP, probably the most destructive thing that could strike our nation, should end with some sort of restoration of society. Otherwise, society will not survive.
Please note that I am not minimizing in any way the difficulties that an EMP or other major disaster will have on our lives. But in this article, all I'm doing is focusing on the financial aspect of those disasters. For an EMP, the result would probably be the destruction of the economy as we know it. A new economy will have to grow to take its place, with a high probability that the new economy will start out on a cottage industry level and build into a full-blown market drive economy.
In that case, the new economy will be created by those who have something of value. This is pretty much universal in the creation of any economy. People who have things of value, especially things that others need, establish the basis of trade and the pricing standards under which that trade happens.
In addition to those things that people need, precious metals and real estate are normally the safest investments you can find. Granted, we recently had a major problem with real estate values, when the housing bubble burst in 2008. But other than that one example, real estate has historically been one of the safest investments you can make. The reason is, people always need a place to live, and the places where they live are the same places that are used for agriculture and for business.
There is a lot of land in the world that doesn't have much value. That's because it is essentially useless. I'm not talking about that land. Buying a tract of land in West Texas miles from paved roads, electricity and running water isn't much of an investment; unless you want to build a getaway there. But owning land in or near the city is another thing entirely.
Gold, silver and other precious metals always seem to go up in price, no matter what happens to the rest of the economy. Actually, the worse the rest of the economy is, the greater the chance that precious metals will increase in value. Throughout history, they have been the default currency, when all other currencies have failed. When ours fails too, you can be sure that gold and silver will go up in value.
In fact, they will probably go up in value so much that anyone who invests in gold and silver before a major crisis hits, will find themselves well-off afterwards. Investing in gold and silver could pay off a mortgage or other major debt, after another major financial hiccup like the housing crash.
So, the key for the long-term is to have something of value and manage to keep hold of it. A great example of this is the occupied countries of Europe, during and after the years of World War II.
Europe in World War II
The continent of Europe suffered greatly throughout the NAZI invasion of World War II. Countries were either conquered or capitulated to Germany, allowing the Germans to rape their economies. Literally billions of dollars worth of goods, artwork and other valuables moved from the occupied countries to Germany, some to never be seen again.
Rationing was in effect for everything, especially common things that people needed every day. Food, gasoline and rubber tires were rationed, just like they were here in the United States. The difference was, Germany rationed as a conqueror, which made the rationing much more strict for the people who they had conquered. They needed the goods of those countries to feed their military, so they left the people there without enough.
One way that the people in the occupied countries handled this was the creation of a black market. Necessities, especially food, could be "bought" in a barter system, from farmers and others who had them. People would leave the cities carrying suitcases filled with silver and other valuables, and trade those valuables with farmers for hams, sausages, cheese, butter and other foodstuffs.
This made many a farmer rich after the war, when they were holding onto a vast supply of valuables. They sold them off, using the money for other things. In this, the farmers were more prepared for the "after" than the people living in the cities.
An important thing to note about this is that the relative value of the food and the silver changed through the course of the years. Before the war, food was plentiful and cheap, while silver was expensive. But the scarcity of food during the war years raised the value of the food until it was worth more than the silver. Once the war was over and food production went to the local community, rather than being taken by the Germans, food once again dropped in price; but the value of the silver stayed high.
It was this relative change in value that allowed the farmers to make a profit from the war. When things returned to normal, they were the ones who were holding on to things of value, so they were able to take part in reestablishing the economy, gaining for themselves at the same time.
Generally speaking, the value of anything is defined by a combination of its scarcity, its utility and difficulty to produce. A very complicated item, such as an automobile, will generally have a higher value than a barbecue grille, due to its greater complexity. However, if there is no gasoline or any likelihood that gasoline will become available, that car loses value rapidly. While the difficulty to produce it hasn't changed, the auto's utility has disappeared.
Scarcity is probably the biggest one of these three factors. Precious metals and stones are highly prized and valued for their rarity, more than any other reason. While gold, silver and even diamonds have industrial uses today, those uses didn't exist 500 years ago. Yet, they were considered highly valuable back then. That's because of their rarity.
It is possible to manipulate the availability of something, making it scarce and increasing its value. A few decades ago, one wealthy family started buying up all the silver they could, increasing its price. However, that was a totally artificial increase in silver's value, brought about by manipulating the market. Once they sold off that silver, the value dropped back down.
Silver's value today is based mostly upon the amount of silver that is in circulation. If the amount were to suddenly increase, it would go down in value. But, as we've seen by that example of artificial market manipulation, a reduction in the supply would increase its value. There are rumors that the world's supply of diamonds is and has been tightly controlled by the DeBeers family, who own South Africa's largest diamond mine. However, there are also about 50 other major diamond mines, making that somewhat unlikely.
Temporary supply situations can make the value of something skyrocket for a short period of time. Any time there is a hurricane in Florida, people outside the area load up pickup trucks with plywood that they've bought at retail and haul it to the affected area, selling it for $100 per sheet.
They are taking advantage of a temporary change in the value of the plywood. While not considered ethical and actually against the law in some areas, this is a perfectly normal example of how value changes, just like the value shift we talked about in Europe, which transferred a lot of wealth from the hands of city dwellers, to farmers.
Being prepared for such an event, by having items that will be in high demand, is a great way of making a profit out of a bad situation. While some would call this wrong, it's really no different than what florists do on Valentine's Day and Mother's Day, doubling the price of roses. Or roofing companies who take advantage of a hailstorm to get a lot of lucrative contracts from the insurance companies of families whose homes are damaged by the hail.
Taking Advantage of Adversity
Any crisis or disaster situation provides an opportunity for those who plan ahead to provide goods and services to people, simply because things that are common become rare. More than anything, this refers to food, although it can be extended to include such things as personal hygiene products, first-aid supplies and home repair materials, even cigarettes and alcohol, as well as a host of other common items.
The challenge to the person who is stockpiling supplies to sell at such a time is to have the foresight to determine what people will need, especially those items which will increase greatly in value. There's also the risk that the expected disaster may never present itself, meaning that the investment sits idle. But for those who make the right decisions, there is a great opportunity for profit.
This is part of what's behind the idea of stockpiling supplies to barter during a time of crisis. While many people talk about bartering those goods for things that they didn't stockpile in sufficient quantity, chances are that if you didn't stockpile enough of it, nobody else will have either. Regardless of that, there is still the opportunity of making a profit, just like the farmers in Europe did during World War II. There will always be plenty of people who didn't prepare, who have things of value that they can trade.
The most common item to stockpile for this sort of bartering is food. Many sorts of disasters, including some of those that threaten our nation, bring with them food shortages. It doesn't even take a nationwide disaster to cause that. People were searching dumpsters for food after both Hurricane Katrina and Superstorm Sandy.
In my opinion, non-perishable food is the ultimate commodity, able to be used as barter goods, as well as money when money fails. Not only that, but it is one of the best investments to make today, simply because the cost of food is increasing much faster than the general inflation rate.
Considering that the average family keeps a three day to one week supply of food in their home, having food on hand that can be bartered or sold is an almost sure-fire way of making a profit out of any disaster situation. At the same time, it provides security for your family, as you can use it to help you get through a personal financial crisis.
But What About Your Family?
I started this article, talking about the possibility of a personal financial crisis, not a major crisis. However, the two are very closely intertwined; at least in a planning sense. Many of the same things that will help your family to survive a natural disaster or nationwide catastrophe, will also help your family to survive a personal financial crisis.
If you are stockpiling food and other supplies for an emergency, then they are available for use in any emergency. While I wouldn't call the unexpected visit of your third cousin Frank and his hungry kids an emergency, I would definitely call the loss of a job and the resulting loss of income one. In that case, it would be perfectly normal and acceptable to get into your food stocks, using those, rather than having to buy food for your family.
In a job loss situation or other personal financial disaster, the first thing you need to do is to cut expenses. Eating your food supplies definitely helps you do that. So does eliminating non-critical expenses, such as:
- Cable television
- Ballet classes
- Memberships at the gym
- Extra cell phones (the kids may scream, but at least they'll be able to eat)
- Eating out
You can also save money by digging into your prepping supplies for:
- Personal hygiene items
- Alternate heating of your home
- Producing some of your own electrical power
While you may not want to eat up your food stockpile, you have to remember, this is exactly what you created it for. That stockpile is there to help your family make it through the hard times. Well, personal hard times are just as bad as ones that you share with the rest of the community.
The true advantage here is not that it feeds your family, but that it makes whatever money you still have go farther. It's rare that both income earners in a household lose their jobs at the same time. So, by eating food from your stockpile and making some other cuts in your expenses, you might find that you can make it by on one paycheck... at least for a little while. That will give you the chance you need to find a job and get back on your feet.
Set Some Aside for that Rainy Day
In addition to your prepping stockpile, you need to set some money aside for a rainy day. Now, I know what you're thinking. You're thinking that there is no way you can do that. But I'd like to argue that with you. I think you can. It might just take thinking about things a little bit differently to do so.
First of all, we all have areas of waste in our monthly budgets. While I wouldn't call your daughter's ballet lessons a waste of money, I would call paying for more phone service than you need a waste. I would also call paying for satellite or cable television a waste. Aren't there better things you can do with your time... like maybe playing with your kids? Maybe you smoke; isn't that a waste? Maybe you drink a couple of beers when you get home from work; is that necessary?
Ultimately, you've got to decide what's necessary for you and what's a waste. I merely mention these things as possibilities. But I'd be willing to bet that if you took a good look at your monthly expenses, you could find some areas where you could cut, without it hurting your lifestyle in any significant way.
The next thing to look at is how you spend your money on your "necessities." I put that in quotes, because, once again, I'm not convinced that they are all really necessary. For example, most of us buy the largest house we can afford. While there are a number of good reasons to do that, do you really need that expensive a house? Could you get by with less and still be comfortable?
My wife and I bought a home, moving our family from a 1,350 square foot house into one twice that size. We didn't have any new family members and we didn't have anything else to require extra space. I have my office in the home, but I did so in the smaller house as well.
The basic fact was that we wanted that bigger house. Now, in our case, we got a tremendous deal on the big house, because we bought it at the height of the housing crash. But had we not, there would be no way we could have afforded it. Yet, some people would buy that big home anyway, even though they didn't really need it and really couldn't afford it.
Look at your needs and make sure that your expenses are in line with them. The average American family spends 110% of their monthly income. With that sort of expenses, you'll never be able to set any aside. Then, when that rainy day comes, you won't have anything to use.
Another place where people tend to spend more than they can afford is on their cars. The average American family is making payments on two cars, often paying more on those two cars, than they pay on their home. Then they wonder why they can't afford to go on vacation or save money for retirement.
Let me tell you a secret. That saying about "you either pay it in car payments or you pay it in repairs" is false. I've only owned one new car in my life; everything else is used. I don't normally even consider buying a vehicle unless it is at least 10 years old. Then, I often drive them for another 10 years before they die. My current cars are a 1999 and a 1996. That '96 has 290,000 miles on it, and it's still going strong.
Yes, I have to repair my vehicles, but not all the time. I maintain them properly and do the repairs myself when I can. In that way, my total repair bill works out to less that $1,000 per year, much less than a car payment.
If you have to buy cars on credit, then only buy one at a time, and get a four year loan. When that car is paid off, keep it another four years, while you buy another car. If you alternate cars you are replacing and always get four year loans, you'll save a bundle of money; and cars should be able to last eight years, without serious problem if you maintain them properly.
The other important source for money that most people overlook is windfalls. We all have these in our lives, although we don't have as many of them as we'd like. For most people, their number one windfall is their income tax return. But rather than saving it, they spend it. In fact, they spend it on something frivolous, that they couldn't afford without that government check in hand.
You've got to decide what's more important to you; that big screen television you've been wanting or your family's security. If it's your family's security, then you can do without the big screen TV. I'm still watching a television with a cathode ray tube (if you remember what those were) and it serves me just fine. I don't need a new TV, so I haven't bought one.
Needs and desires are different, and I've got to say that it's awfully easy to put our desires above our needs. But when we do that, we are setting ourselves up for financial trouble. You might want that big screen TV, but you don't really need it. What you need, is money in the bank (or in your mattress), so that you can pay the mortgage when your family has a financial tragedy.
My wife and I made a habit of putting all our windfalls into savings a number of years ago. Eventually, that money became the down payment on our home. Had it not been for that, we would not have been able to buy a family home.
Since buying the home, our windfalls have been invested in gold and silver. So now, if something happens to the economy, we'll be able to cash those metals in and pay off our home. Once we can do that, we won't have to worry about losing our home, if a major disaster should occur. We will have gained some real security for ourselves and for our kids too.In doing this, we've put our family's needs above our desires. Instead of buying ourselves the things we want, we've been concentrating on what we need. But in the long run, it means we are going to have a much more secure life, without many of the worries that plague most people.