Crisis

How to Make an Emergency Preparedness Kit

Ashley Eneriz — Wed, 25 Apr 2018 09:00:06 +0000

An emergency can hit your home at any time — whether it be a citywide natural disaster, or an isolated crisis such as a house flood or fire. And while it's hard to predict when the worst will happen, it's important to be ready and prepared for if it does.

Being ready for an emergency goes beyond having the basic supplies necessary for survival. You should also have important personal and financial documents somewhere safe and easy to grab when you only have a few minutes to think. Here's how to start building your kit. (See also: 8 Signs You Aren't Prepared for an Emergency)

Keep important documents in a safe

Invest in a fire-resistant, waterproof safe that is easy to pick up and carry in an emergency. A digital safe with backup keys is a good idea. Keep the following items inside:

Marriage certificate.
Birth certificates for each family member.
Social Security cards for each family member.
Passports for each family member.
Military ID.
Pet ID tags.
Prescription medicine information.
Important USBs, computer backups, and external drives.

It is also wise to keep some cash in this box. Ideally, between $500 and $1,000 will be enough to get your family through an immediate crisis. When a disaster strikes, you may not have the time or ability to access your bank accounts right away. This little cushion of cash can cover you until then.

Use the cloud to protect other important info and photos

Thankfully, the internet makes it easy to access insurance policies, medical information, important bank and housing info, and beloved photos from anywhere. If you don't have access to these documents through online accounts, either keep physical copies of these documents in your safe, or scan them to a secure cloud storage site.

Personal photos and videos can be uploaded to social media or private websites, or saved to cloud storage like Amazon Drive, Dropbox, or Google Drive. (See also: 10 Critical Steps to Protect Your Data in the Cloud)

Stock your pantry for emergencies

If you have to evacuate your home quickly, it probably won't matter what's in your pantry. However, in the event a natural disaster or massive storm confines you to your home, you still want to keep extra, nonperishable food on hand in case you can't get to a store.

You don't need to spend a ton of money or invest in emergency meal prep kits; simply buy a few extra boxes or cans of food each time you visit the grocery store. This will allow you to stay within your food budget and still build up a helpful supply. Here are a few things to stock up on and keep in your pantry:

Water bottles and a few gallons of water.
Protein or granola bars and protein powder.
Canned soup, beans, and tuna.
Trail mix and nuts.
Peanut butter or other nut butter.
Beef jerky or other dried meat.
Dried fruits and vegetables.
Bulk rice and grains.
Large containers of sugar, cornmeal, oats, oil, and flour.
Bottled juice.
Jarred tomatoes and spaghetti sauce.
Manual can opener.

To keep your pantry useful and budget-friendly, buy items that you normally eat anyway. Rotate them to avoid having food spoil or go to waste. If you would never eat canned sardines, don't stock up on them thinking you will learn to love them in desperate times. (See also: Micro-Prepping: How to Prepare for Small Disasters)

Other emergency supplies to have on hand

Buying a fully equipped pre-made emergency kit can cost you over $100. You can put together your own kit for less by shopping sales and buying a little each month. Just make sure to have a dedicated spot for your emergency items. You don't want to stash extra flashlights in one drawer and a respirator or water in a hard-to-reach place on the other side of the house. Keep everything in a clearly labeled 20 to 45-gallon tote in the garage, basement, or hall closet.

Here's what you should purchase and keep in this kit:

A comfortable backpack or wheeled luggage to pack the items in.
A first-aid kit with bandages, gauze, disinfectant pads, oxytetracycline tablets for diarrhea and infections, tweezers, scissors, antibiotic cream, and aspirin.
Emergency power source or external battery that can act as a flashlight and charge phones.
Extra prescription glasses for you or family members.
Extra batteries and flashlights.
A pocket knife and multifunction tool.
Hand and foot warmers.
A portable blanket.
Baby wipes and disinfectant wipes.
N95 respirators.
Boxed water and water filters.
A few food items with long shelf life, such as beef jerky, peanut butter, and protein bars.

Keep all of these items in the tote, along with extra supplies that are nice to have but not essential, like ponchos, hiking boots, and extra blankets. You can also keep your safe in here, though a personal closet might be a safer option in case of a break in. (See also: 13 Essentials Every Emergency Bag Should Have)

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This article is from Ashley Eneriz of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Budget During a Crisis

Rachel Slifka — Tue, 17 Apr 2018 08:00:07 +0000

When circumstances are normal, budgeting really isn't that difficult. For the most part, you can predict your expenses, income, and your day-to-day activities with relative ease. But what happens when an emergency comes up and threatens to ruin everything, including your finances?

Maybe you or a spouse lost a job, or a major medical situation is costing you a lot of time, concern, and money. How can you continue to budget when your circumstances aren't regular?

Remain calm

After a crisis, dread and fear can quickly set in. You may even be afraid to open the mail for fear of yet another bill. It can feel like the world is collapsing in on you, and rational thought goes out the window. Through all of the stress, remember that this crisis is temporary; you can and will get through this in due time.

Panic might be your natural reaction, but it isn't helpful in moving forward. Acknowledge your feelings, but try to remain as calm and levelheaded as possible.

Prioritize expenses

What bills do you need to pay immediately? Many types of debt, including your mortgage, auto loan, and credit cards won't be officially reported as late until they are more than 30 days past due. Are there bills that are approaching or past that time frame? Do you have enough income to cover all that you owe?

If you aren't sure that you can pay all your bills, you have a couple of options. The worst thing you can do is to simply stop paying. That will only get you further behind and you risk racking up a mountain of overdraft and late fees, not to mention the potential blow to your credit.

One option is to call the company behind each of your debts, explain your situation, and ask if you can get an extension or work with them to develop a payment plan. You will need to go back to your bills and prioritize them with any updated information and due dates. Pay the most urgent bills first. (See also: Pay These 6 Bills First When Money Is Tight)

If you still are coming up short, you will need to find a way to drastically cut your costs. Are there bills you can lower or cut out entirely? Start with the unnecessary expenses. Things like entertainment and dining out should come to a halt. Canceling subscription services such as magazines, gym memberships, and cable can put hundreds back in your pocket. Next, see what necessities you can lower. Find ways to shave dollars off your costs for gas, groceries, utilities, and more until your crisis has been dealt with. (See also: Are You Spending Too Much on "Normal" Expenses?)

Check in with your finances daily

Until your financial situation is under control, make it a point to check in with your money every day. Review all of your bank accounts, credit card balances, bills, budget, and know when your income is available. It's easy to get distracted and disorganized during a crisis, and that will only make your money matters worse. Overdraft or late fees can quickly pile up if you aren't diligent.

Know what to avoid

In a crisis, you may not know where to turn. By far, the worst resources you can turn to are credit cards or payday loans.

Credit card debt is very easy to get into. Getting out of credit card debt can take you years, especially on the heels of a financial crisis. Using credit cards during an emergency should be a last-resort option when you have no other choice. Prioritize repaying that debt ASAP once your crisis has been handled.

Payday lenders, meanwhile, deliberately target people in desperate situations. Believing they have no alternatives, people turn to these loans and rack up staggering amounts of debt at exorbitant interest rates. This practice of predatory lending leaves many people worse off than they were before. Avoid using these types of services at all costs.

Create a plan to protect your finances in the future

Digging yourself out of a financial hole will take time, but with persistence and smart money moves, it is absolutely possible. Once you are back on your feet, it's time to take action to ensure the next financial crisis doesn't land you back in the same hole.

Start by prioritizing building an emergency fund so that you are protected to weather another financial storm. Many experts recommend saving between three and six months' worth of everyday living expenses in this fund. With that cushion in place, another job loss, medical emergency, or other major financial blow won't be as devastating. (See also: 5 Ways to Boost Your Financial Resilience)

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This article is from Rachel Slifka of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Ways to Boost Your Financial Resilience

Denise Hill — Tue, 20 Mar 2018 09:00:06 +0000

The ability to bounce back after being financially sucker punched is a necessity in today's volatile financial climate. It's safe to say that at some point in your life, you are going to face a financial crisis. It could come in the form of a job loss, an unexpected pregnancy, a health crisis, divorce, death of a loved one, identity theft, a global recession, the stock market tanking, an act of God … you get the picture. And the most troublesome thing about a financial crisis is it is usually unexpected and beyond your control.

The ability to survive and recover from a significant financial setback depends on how well you are prepared before disaster strikes and how flexible and proactive you are during and after the event. While you can't predict, control, or prevent financial catastrophes, there are a few things you can do to increase your financial resilience.

1. Prepare

According to a 2017 report by GoBankingRates, 39 percent of the 8,000 Americans surveyed had zero savings — and 57 percent had less than $1,000 set aside. That means nearly two-thirds of the people surveyed could not withstand a significant financial setback.

Your ability to rebound after a major money event is directly proportionate to your financial health before the event occurs. If you have little or no money saved, have lots of debt, and fail to live by a budget, you significantly extend your recovery time.

All of the standard financial best practices — budgeting, establishing an emergency fund, keeping your debt-to-income ratio low, and living below your means — increase your financial resilience. Financial irresponsibility is costly, both now and long-term. Start working now to improve your financial situation. Establish a solid emergency fund, lower your cost of living, and pay off as much debt as possible. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

2. Practice

In the world of competitive sports, practice is important for three reasons. First, it prepares you for competition. Second, it creates muscle memory and habits. And third, it predicts future performance. In other words, you perform how you practice. This same thinking should be applied to your finances.

How does one practice for a financially stressful event, you ask? The first thing is always, always, always live by a budget. Budgeting gives you the power to see and decide where your money goes. You should make it a habit to establish a system of budgeting and tracking every dollar you receive and spend. It establishes a habit of being financially proactive which is pivotal in a crisis.

Another way to practice for a financial surprise is by running regular "practice drills." A few times a year my husband and I engage in what Michelle Singletary, nationally syndicated columnist for The Washington Post, calls a financial fast. During our fasts, we cut out all unnecessary spending and only buy the absolute necessities for a short period of time (about a month). We tighten our belts and live as frugally as possible. We usually wind up saving an extra $200–$400 on top of what we already save. It allows us to see the areas where we can cut back and it keeps us in the habit of adjusting our spending and living on less. (See also: Here's How a Spending Ban Can Help (and Hurt) You)

3. Don't panic

When a financial storm does arise, don't panic. The worst thing you can do is to act prematurely and while under duress. When you are stressed and scared, you are not only more susceptible to making poor decisions, but you are also vulnerable to financial predators. Scammers, con-artists, and unscrupulous lenders feed on your fear and can turn a bad situation into a disaster.

It's important to assess your situation and explore all of the possible solutions before deciding on a course of action. Seek sound, objective financial advice. Don't overcorrect and make the situation worse by prematurely borrowing money from your IRA or taking out a second mortgage. There may be less costly options available to you.

And don't be afraid of unconventional solutions. There may be smaller things you can do to keep you from having to make drastic and more costly decisions. Consider things like adjusting your insurance coverage and deductibles, adjusting your tax withholdings, or even selling your car. The important thing is to stop, breathe, and remain open to considering a multitude of possibilities before you act. (See also: How to Protect Yourself From Predatory Lending)

4. Prioritize

Establishing your financial priorities before a disaster occurs is so important. You should always plan to cover your basic needs: food, housing, transportation, etc. If you are unable to afford the basics, look for programs that aid with these things such as a food bank, rent/mortgage assistance, and public transportation. Keeping yourself and your family alive, safe, healthy, and functional must be your top priority.

From there, begin to make a list of the order in which you will pay and skip bills. Yes, you read that correctly. In a time of crisis, some things may have to go unpaid for a time. It's important that you prioritize and pay the things that need to be paid in lieu of randomly paying things as they become due. Opting to pay your store credit cards and cable bill and foregoing the mortgage or rent is a bad idea, but is an easy mistake to make when you don't have a plan. (See also: Pay These 6 Bills First When Money Is Tight)

Lastly, make a list of the order in which you will do things (exhaust the emergency fund, sell the car, get a second job, begin skipping bills, etc.). Having a plan helps ward off panic; it helps you make sound decisions and ensures that you can make the right adjustments as the situation changes. Make sure you run your plan by someone astute in money management who will help you make the best decisions for your circumstances. (See also: 4 Times Raiding Your Retirement Accounts Early Is Okay)

5. Be proactive

The most important thing to do before and during a financial problem is to be proactive. It sounds like basic advice, but being assertive and mustering up the strength to act is difficult during a crisis. Most major events bring with them a grieving process. Trying to be strategic — heck, just trying to function — during a difficult time isn't easy. You've got to acknowledge and accept that the crisis is real and begin damage control as you cope with your grief.

Being proactive early in the process allows you to chart a course of action. You can contact creditors and arrange to pay late or make partial payments and find out what other courses of action are available. You should begin the proactive process by revising your budget to reflect the loss of income or new expenses and stop any unnecessary spending immediately.

After you've prepared your financial ship for battle, start looking for solutions specific to your situation. Make sure you understand your insurance policies, file for unemployment or disability benefits, research treatment options and alternatives, and get a second opinion. It is also a good idea, especially when dealing with tax and/or legal issues, to consult a professional. Arm yourself with as much information as possible before you act and be sure you weigh the benefits of each decision. Remember the key here is to survive the storm and live to fight another day. (See also: What to Expect After These 5 Personal Financial Disasters)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Keep a Personal Problem From Hurting Your Career

Paul Michael — Thu, 05 Oct 2017 08:30:11 +0000

People have problems; that's just a fact of life. Most people also work for a living, and sooner or later, the two are going to collide. When a personal problem does land on your doorstep, the last thing you want to do is bring it with you to work. That can cause all sorts of additional issues, and they can compound your personal issues even more. So what do you do? How do you separate personal problems from the daily grind?

Don't talk about your problems to anyone at work

It may seem like the most obvious piece of advice, but it is the one most commonly ignored.

All too often this is the way it goes: A trusted friend tries to help you out by telling a manager why you may be off your game. From there, it becomes an issue that several people know about. And before long, half the people in the company are aware of it. It doesn't matter who you think you can trust, and what kind of confidence you swear them to, it will leak. Loose lips sink ships … and careers.

Find someone outside of work to support you

It's imperative to get emotional support at this time, and that means talking to someone completely removed from your work environment. Avoid anyone who doesn't work at your firm, but knows a lot of people that do.

This can mean going to support groups, using online forums (where you can remain anonymous but get advice), or if worst comes to worst, calling a crisis hotline such as Samaritans. Don't be afraid to ask for help, because a problem shared really is a weight lifted. Just make sure you do it in a way that cannot create another problem — namely, a career problem — on top of whatever else is troubling you.

Find helpful ways to deal with your emotions

Not talking about your problem at work can be tough, especially when people treat you poorly without knowing what you're actually going through. So, look into helpful and productive ways to deal with the emotions that can build up in the workplace.

One of the best ways to hash out emotional stress is going to the gym, especially if your office provides a workout facility on-site. Otherwise, going to the gym before and/or after work, or exercising at home, can do wonders for your emotional pressure cooker. If working out doesn't do it, find a new hobby, or really go all in on projects at work to keep yourself from thinking about your stress.

Talk to your boss about the need for flexibility and understanding

You don't have to breathe a word about the specific problem you're facing. You can simply say something like, "I'm going through a problem that's important and stressful outside of work, and need your help in managing my workload and the expectations of other departments." Your boss knows you're not a robot, and if you have been a superb employee before the problem arose, he or she will do whatever possible to help you ride out the storm.

You may be given the option to telecommute, or have some of the responsibilities lifted from you for a while. Just remember, a company and a boss can only do so much. If this drags on for months or more, the patience of those you work with will wear thin.

Consider using sick, vacation, personal, and FMLA days

If the problem is so intense that you just find it impossible to concentrate on your work, look into taking some much-needed time off. You will definitely be able to use vacation and personal days. It's possible you could also use sick time, or bring the Family and Medical Leave Act (FMLA) to your defense. This U.S. labor law requires employers to give workers job-protected unpaid leave in the event of a qualified medical or family emergency.

While you may think it will look bad to take extended time off, it will be far worse to stay at work and put in a terrible performance. In some cases, your lack of concentration could lead to disastrous consequences. Better to be away and working things out than at work and messing things up.

Seek professional counseling

Thankfully, the stigma of seeing a licensed psychologist or psychiatrist lessens with each passing year. However, there are still people out there that avoid them at all costs out of embarrassment. Really, that should be the last concern on your mind.

You need to solve the personal problem that's weighing you down, and professional counseling can be a great help at this time. The counselor may not be able to solve that problem directly, but even just talking it through with them can open new possibilities and avenues of success. At the very least, it's a confidential source in which you can confide, and that in itself can be a huge help.

Keep a daily reminder to remain positive, calm, and professional

When you get up in the morning, along with your usual routine, add something that gets you ready to tackle the workday — both emotionally and physically. Tell yourself that this will pass. Remind yourself that you're a good person in a bad spot, and bringing that issue to work will not help your situation. Take a deep breath and say out loud, "I'm going to do a great job today, because I'm a great employee."

It may feel corny, but doing it every day before work gets you into the mindset of being a real pro. The power of positive thinking is proven, and by getting into the best state of mind and avoiding negative thoughts, you will do much better at work. As the brilliant work coach Tim Ferriss says, "If you sit down in a negative state, you will be thinking first and foremost of problems, and not solutions."

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Do When You've Blown Your Budget for the Month

Sarah Winfrey — Thu, 27 Jul 2017 08:00:05 +0000

You're a week into a new month, and you take a look at your bank account — only to find it dangerously low. You've spent way more than you had budgeted for way too early.

Overspending happens. Sometimes it's planned (like for a vacation), but other times things get out of control, emergencies occur, or you end up in situations where spending money legitimately seems like the best way out.

No matter the reason for your blown up budget, there are steps you can take to limit and mitigate the damage.

Assess the situation

Start by being completely honest with yourself about the situation. Determine what caused it, how much responsibility you bear, and whether it's going to be ongoing. For instance, a medical emergency could be over after a couple of days, or it could be something that you're going to need to budget for into the future.

If the budget blowout is your fault, admit your mistake. It helps to tell someone, whether it's your spouse, a good friend, or someone else you're close to. This makes it real, and it also means you'll have someone to keep you accountable.

If the issue was beyond your control, let yourself off the hook for any guilt. Emergencies happen. Simply focus on trying to bounce back and don't stew over the situation.

You also need to determine how you will be affected financially for the rest of the month. Do you have the money to cover your bills and expenses, or is this going to leave you totally strapped for cash? You can't bounce back until you know exactly where you stand.

Tap your emergency fund

While it's best to save an emergency fund for a true emergency, like a medical crisis or an essential car repair, you may need to use it to bail yourself out of a tough financial spot.

The key to using an emergency fund, though, is to replenish it afterward. If you overspent and it saved you, you need to start putting money back into it the following month. As long as you make sure you are doing this regularly, you will be more likely to have that financial cushion again when you need it.

Cut your losses

Stop spending wherever you can. No matter your situation, there are things you can do to spend less. Cut out restaurant and takeout meals and prep your own food at home. Pack a lunch to work. See if you can walk, bike, or even carpool to the office or out on errands. Don't spend money on anything that isn't an absolute necessity.

If you are in a budget hole of your own doing, this is the time to get strict with yourself. Maybe you need to spend a week of evenings at home instead of out with friends. Maybe you can invite them over instead of going out. Or, maybe you need to face your shopping addiction, and learn to cope with negative feelings in other ways.

No matter where you are and what is going on, the first thing you need to do is stem the outflow of money.

Make a plan

Once you know how you're going to stop the bleeding, it's time to make a plan for how you're going to cover your expenses and pay off any debt that has accrued.

If you're in the middle of a crisis, this may not be something you're able to do until later. If you can sit down and assess your finances, though, you will probably be better off. Grief and pain can be overwhelming, however, so if the best you can do is put things on a low-interest credit card until you can deal with them later, that's an acceptable temporary move. Just be sure to make paying off that credit card balance a priority once you're back on your feet.

Note that you may need to revamp your budget for a while to accommodate extra credit card payments or reestablish your emergency fund. You may even have to cut your spending for a few months into the future. Knowing this ahead of time can make those months less of a financial struggle.

This is also the time to look beyond the surface at what caused this crisis and determine whether you can do anything to keep it from happening again. Do you need a larger emergency fund? Do you need to cultivate more discipline with money? Do you need to talk to a therapist about how you feel when you spend? Make a plan not only to cover the amount you spent, but to keep yourself from similar situations in the future.

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This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are We Headed Toward a Bull or Bear Market?

Tim Lemke — Mon, 15 May 2017 08:00:09 +0000

The stock market has been on a roll over the last year. Since the winter of 2016, investors have enjoyed a delightful bull market that has seen the S&P 500 index rise by more than 25 percent.

Whenever there is a lengthy run-up like this, investors always want to know how long it can last. Are we due for a big correction or even a record-breaking crash? Or will we see the markets continue to rise?

Trying to time the market's movement is a fool's game, but it's always smart to look at the various indicators that may foreshadow future performance. With the current market, there is evidence to back up both bullish and bearish predictions.

Indicators of a bull market

The good times won't end anytime soon.

Most economic indicators are strong

For the most part, the American economy is stable. Unemployment is at its lowest point in a decade. Inflation is not out of hand. Manufacturing output is up, along with consumer confidence. There are some concerns about overall growth and productivity, but nothing that spells immediate doom for American investors at this point. Generally speaking, if the underlying foundations of the economy are sound, a sudden drop in stock prices is unlikely.

Interest rates are still historically low

We've seen interest rates creep up a bit, but they are still very low by historical standards. If you're placing money in a bank account, don't expect to receive much in the way of income. Bond yields are also very low. Thus, there's a good chance we'll see people continue to invest in stocks, as they have recently offered much better returns than most other options. As long as interest rates remain low, demand for stocks will be high.

Technical analysis supports it

Many analysts and financial planners prefer to examine a technical analysis of the stock market's performance, which looks at long-term trends that have historically repeated themselves. Most observers of these trends believe we are halfway through a growth cycle that began around 2010 and will continue another five to 10 years.

Corporate earnings are good

The stock market has been known to take a dive when stock prices are high, based on the underlying earnings of companies. In other words, when stocks are overvalued, the market will eventually find out, and you'll see a big correction. Recent earnings reports suggest that the stock market growth is justified. Earnings reports for the first quarter of 2017 look to be among the best in more than five years, so there's no indication that stocks are generally overvalued as a whole.

Lawmakers are pushing pro-business policies

President Trump was elected in part because of promises to lower corporate taxes and reduce business regulations, and he has the majority support of Congress. These are policies that are generally favored by the business community, and investors have responded positively. As long as businesses remain optimistic about policy changes, the stock market will be propped up.

Indicators of a bear market

On the other hand, maybe the good times are about to end.

Companies are heavily leveraged

U.S. companies have more debt than ever, and a lot of it comes due in the next few years. Moody's Investors Services estimated that a record $2 trillion corporate debt will come due between now and 2021, and warned that the market's ability to absorb all of these maturities is "below average." Few analysts are predicting a massive wave of corporate bankruptcies, but an inability to refinance debt could curb corporate profits and cause stock prices to fall.

There's a possible epidemic of auto loan defaults

When the stock market last suffered a big crash in 2008, it was largely due to a flurry of defaults on mortgage loans. Many Americans obtained home loans that they ultimately could not afford, and ended up in foreclosure when home values dropped.

These days, it appears that there may be a similar concern facing the quantity and quality of auto loans. It may not be as big a crisis as the housing bubble, but Americans ended 2016 with a record $1.2 trillion in auto loan debt, an increase of 9 percent from the previous year. Nearly one-fourth of these outstanding auto loans are considered subprime, and the delinquency rate from these loans is at its highest in seven years. This doesn't pose the same systemic risk as the mortgage crisis, but the auto industry is a key part of the American economy.

Europe is facing uncertainty

The United Kingdom is in the process of leaving the EU. There are rumors that other countries (France?) may follow suit. There are lingering concerns over terror attacks in the region. On one hand, economic trouble in the EU may benefit U.S. companies, but many American firms operate in Europe and are impacted by geopolitical uncertainty anywhere.

Political concerns

President Trump and members of Congress have been pushing pro-business policies, but eventually, they will have to deliver the goods. Their struggles in passing a repeal of the Affordable Care Act has been viewed as a sign that they may not have the wherewithal to accomplish big things, such as tax reform. A failure to follow through on any of these major promises could eventually cause a pullback in the markets.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Does Your Business Need a Crisis Response Plan?

Thursday Bram — Thu, 22 Sep 2011 21:49:01 +0000

Link:

http://www.openforum.com/articles/does-your-business-need-a-crisis-response-plan

Just a few weeks ago, I was working in my home office when the whole house began to shake. It may have seemed minor to anyone who has lived in California, but an earthquake with a magnitude of 5.8 is a big deal for those of us on the US east coast.

Many businesses sent their employees home, either because they wanted to check their buildings for potential damage or because those employees needed to deal with personal matters, like picking children up from the many schools that closed.

A week later, a hurricane swept up the same coast. That led to more downtime for businesses that needed to batten down the hatches and, in many cases, make repair afterwards. There was more warning for the hurricane than the earthquake, but it was still tough for many businesses to handle.

The Big Problem is Planning

The simple truth is that, as business owners, most of us are focused on building our businesses. We can be so busy working on the opportunities in front of us that we often forget to do any contingency palnning. In fact, at the time of the 9/11 attacks only 19 percent of CEOs reported having a crisis management plan in place, according to PRWeek. But that sort of planning is absolutely crucial.

There’s no way to plan for every eventuality, but there are a lot of generalized responses that you can put together. In the process of creating a crisis response plan, you may spot some weaknesses in your business’ operations that you can take steps to fix now.

Categories of Catastrophes

Think in terms of categories of potential issues, rather than every possible permutation. That will you will have options that you can adapt to different situations. After all, what you need to do in the event of a blackout will be different than what you’ll need to do in the event of a full-fledged evacuation. Where possible, you might want to consider preventative steps you can take, as well.

There are plenty of companies that specialize in handling every aspect of crisis management, from prevention to recovery. The price tag can get a little steep for a small business owner, and it is certainly possible to put together a plan for your business without those companies’ guidance, provided you can invest some time in the process.

The Crises Worth Planning For

There are plenty of natural disasters that could potentially strike your business, to the point that it can feel absolutely overwhelming to start planning. A more manageable approach can be to think in terms of what you actually need to operate your business—and what you would need to do if you had to go without.

Make a List

You can start by just making a list of what you use every day in the course of running your business. Dig down deeper than just the obvious, though: if you boot up your computer, you’re not just using your computer. You’re using electricity, an internet connection, software, and perhaps even some web applications.

Don’t forget to think about a crisis that might remove you from the equation. If an employee or one of your family members had to step in and handle your business for you, having a plan in place they can follow—typically referred to as a continuity plan—is crucial. The same goes for the employees who work for you. Especially if you work with a remote team, a team member may be unexpectedly unavailable, for days or even weeks.

Documenting Your Crisis Response Plan

Keeping your crisis response plan in your head is a sure way to make managing a crisis harder. If a hurricane is headed your way or you just rode out an earthquake, you’re going to be stressed—ask anyone living in the Mid-Atlantic region. You’re bound to forget at least a few details.

With a written set of guidelines, you can respond quickly. A checklist is nice, especially in situations like an evacuation, when you may have to do a lot in a very short period of time.

Be sure to have multiple copies of your plan available, in multiple locations. Storing it on your laptop is great—but what happens if the battery runs down and you can’t recharge? For once, this is a situation where electronic tools shouldn’t be your main choice. Sure, you should keep a couple of copies on different computers and in the cloud, but you absolutely need to print out a couple of copies as well.

You’ll find that it’s worth running drills, as well, even if it’s just you in the office. Practicing the steps you’ll need to deal with a certain situation can help you find potential problems in your plan. Solving such issues now means one less thing to worry about in the event that there’s real trouble. You may also notice opportunities for preventing certain situations: even something as simple as setting up off-site backups for your computer files can save your bacon in the event that a crisis wipes out your desktop or laptop.

This article is from Thursday Bram of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How To Plan For A Crisis

Tom Harnish — Thu, 01 Sep 2011 20:39:40 +0000

Link:

http://www.openforum.com/articles/how-to-plan-for-a-crisis

Bad weather, a devastating earthquake and chemical or industrial accidents can cost you plenty—even put you out of business—if you aren't prepared. But properly handled, "That which does not kill us makes us stronger," as philosopher Friedrich Nietzsche put it.

Ultimately, a crisis can be an agent for change that leads to increased flexibility and adaptability, and can help reduce the impact of future crises. Planning for, and management of, a crisis is possible.

Crisis planning

Preparing for the unknown may sound like a futile exercise, but you need to plan for how you will continue to operate, or temporarily shutdown in an orderly way, regardless of the problem.

Systems: How will you keep automated systems operating, and create manual backups when you can’t?

Infrastructure: How will you maintain infrastructures ranging from electrical supply to supplier deliveries?

Public Relations: What is your public relations plan that communicates that you are aware, in control, and doing something?

For example, do you have a call ladder? You call two people, each of them calls two people, and in 10 steps, over a 1,000 people can be in personal contact. You can use the concept for employees, suppliers and even customers.

Training and simulation are keystones in disaster planning.

Federal Emergency Management Agency (FEMA), American Red Cross, The national Center for Disaster Preparedness through Columbia University, and the Center for Disease Control all offer free disaster planning courses online.

Training isn’t enough, though. The maxim that “practice makes perfect” is true. Unless you test your plans, you really can’t be sure they’ll be effective.

NASA has a telework program, for example, that’s an integral piece of their Continuity of Operations plan. So periodically, they declare a simulated emergency and designated telecommuters sign in from home.

Crisis management

When the worst does happen, you have to manage both the actual problem and perceived problems. Communication can be either the solution or the problem.

When a murderer added cyanide to Tylenol capsules, killing seven, Johnson & Johnson pulled $100 million of product off shelves and their CEO appeared on TV to explain what they were doing. Sales quickly returned to pre-crisis levels.

On the other hand, when toxic gas escaped from a Union Carbide plant in Bhopal India, communication breakdowns before, during and after the disaster only made matters worse. Crisis plans and emergency instructions were only available in English. Senior executives were put under house arrest and cut off when they arrived in India.

Management and staff blamed each other, records were changed in a massive coverup. Amazingly, sabotage was found as the probable cause, but popular reporting was allowed to ignore that “virtual certainty.” Twenty-five years later, the company is still struggling with repercussions including fines and even jail terms for two executives.

The bottom line: make communication a priority. Even when it's tempting to ignore phone calls while putting out the "figurative or literal" fire.

Crisis recovery

Properly handled, you can benefit from a crisis. Besides offering the opportunity for examination and change, a study by the University of Oxford found that post-crisis stock prices on average increased by 5 percent for the companies that were prepared. Companies that fumbled lost as much as 15 percent.

Good management can be more effective than insurance in mitigating the impact of a catastrophe. Your business shouldn't fail because Mother Nature is acting up or a man-made disaster occurs.

Create a crisis management plan that’s appropriate for your organization. Test it. Refine it. Communicate it. And use it when the time comes, because it will come. Even as this is written, there’s another hurricane headed for the East Coast.

This article is from Tom Harnish of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Surviving a financial panic -- lessons from the past

Philip Brewer — Mon, 13 Oct 2008 13:44:45 +0000

Financial panics used to be quite ordinary. In the century or two prior to the great depression, there was a panic every 15 or 20 years. Since the great depression we haven't had a classic financial panic, until now. There's a thing or two that we can learn from panics past to help us survive the current one.

To begin with, there's a reason why we haven't had financial panics for the past 75 years--fiat currency.

Panics and gold

Panics used to begin when people decided to get their hands on actual, physical gold. That could happen for a lot of different reasons. Often it was because there had been inflation--banks issuing bank notes far in excess of the gold they had on deposit--and people decided that they didn't trust their bank. Sometimes, though, it happened without any particular malpractice by the banks, simply because there was a demand for gold someplace else--an economic boom in Europe or South America could drain gold from the United States or vice versa.

Since issuing banknotes was literally printing money, the temptation to go overboard was immense, and individual banks that did so used to collapse all the time. A prudent bank, though, could be modestly profitable and a great boon to its community, but in a panic, even prudent banks would fail. (You could, in theory, create a panic-proof bank that held enough gold to pay off every banknote, but it would be a money-losing institution. Holding all its gold in its vaults, it would be unable to make loans, but would still have to pay for a building, tellers, security, and so on.)

Prior to 1933, it was very hard to address a panic, because there wasn't enough gold. Sometimes, if a panic started small, it could be headed off by large banks (or even wealthy individuals) lending gold to the banks that were under pressure. The banks could then redeem enough banknotes to satisfy worried note holders. When the panic subsided, gold would flow back to the banks, they could pay off the loan, and things would return to normal.

In the case of a large panic, though, the banking system as a whole didn't have enough gold to redeem enough of the banknotes. Banks would pay out gold for a while, hoping that they could thereby demonstrate their soundness. Once it became clear that the gold on hand wouldn't satisfy the demands of note holders, the bank would suspend note redemption. Note that, even when that happened, depositors and note holders didn't necessarily lose everything. In many cases, the bank was actually solvent. As their customers went on paying their debts, gold would gradually flow back to the bank, allowing it (at some point) to resume redeeming its notes.

Since 1933, there hasn't been any gold backing the banknotes anyway, a condition that had seemed to have eliminated the possibility of a classic panic.

And yet, here we are. So, what were the keys to surviving a panic in those days, and how do they apply today?

Liquidity

The first way a panic works its harm is by destroying liquidity.

Once a panic started, the first things to go was the payments system. In normal times, people could spend banknotes as easily as they spent gold and could pay their bills with checks. In a panic that isn't true. Every transaction becomes its own negotiation. Payment in gold is fine (although you have to be sure it's real gold). Payment in the notes of a sound bank is okay, but opinions differ regarding which banks are sound and which aren't, leading to confusion and disagreement--the result is a whole sliding scale from the sound banks to the iffy banks to the banks that have suspended redemption of their notes but are still open to the banks that have closed. Checks have the same issue of bank soundness, only it's layered on top of the question of whether or not you've got money in your account.

Adding that sort of negotiation on top of every transaction was obviously a nightmare. So, if you want to understand why central bankers, finance ministers, and politicians are in such a tizzy, imagine layering those issues on top of the complex payment systems that we use now.

Today, checks are clearing, credit and debit cards work fine, the ATM machines have money, direct deposits are going through on schedule, automated clearing house payments for bill payments and bank transfers are all working smoothly. This is a huge win for the economy. Just imagine what happens if those systems start to break down--if your transfer from your internet bank doesn't show up in your local bank, if your credit or debit card starts being declined, if your landlord and the power company stop taking checks and start wanting you to show up in person with cash in hand.

If it was just liquidity, though, the problems would be manageable. Cumbersome, but manageable.

Solvency

The second way a panic works its harm is by destroying solvency.

As a panic began to set in, a business with merely adequate capital could suddenly find itself on the ropes. Its customers would start paying at the last possible moment, and then start paying late (and, in many cases, going bust and not paying at all). At the same time, its suppliers would start cutting credit limits, pressing for early payment, and then demanding payment in cash. On top of that, its bank would refuse to lend. If you had the cash to bridge the gap--paying your bills on time, even though people were paying you late--then you were fine.

It wasn't that simple, of course. If your bank failed it didn't make much difference how much money you had. The wealthy could take measures--dividing their money among several banks and holding some amount of physical gold for example--but those strategies were largely closed to the poor (who couldn't scrap together enough for one bank account, let alone two, and who didn't have a safe place to store gold even if they could put their hands on some). They were also largely closed to businesses, who had their money invested in the business, not sitting around just in case their customers started paying late the very same week their suppliers started demanding payment in cash.

The key, then, to surviving a nineteenth or early twentieth century panic was to have ample cash, to choose your bank carefully, and to have some actual physical gold on hand. In particular, being one of the first people to panic--showing up to turn your banknotes into gold while the bank was still paying in gold--was the winning strategy. The result was bank runs that could bring down even sound banks.

Since there's deposit insurance to protect small and medium-sized depositors--and since there's no gold at the bank to be gotten anyway--we do seem to have largely eliminated bank runs, and largely eliminated the need for ordinary people to participate even when there is one.

Still, the solvency issues remain--if customers can't pay, even a well-capitalized business can't continue to operate for very long. And, as businesses cease operations--or simply shrink to the point where they're sized to service the fraction of their customers who can pay--employees find themselves out on the street, facing their own solvency issues.

And solvency issues are why, even though they're not obliged to back deposits with gold, the banks are failing.

Our new panic

Even sound banks can fail in a panic, if they're obliged to pay out gold, simply because there isn't enough gold in the system to pay off all the banknotes at once. Since our banks aren't obliged to pay out gold, sound banks aren't really at risk--even if they don't have cash on hand to pay off all their depositors, as long as they have assets (generally, loans that are being paid back), they can get unlimited cash from the central bank. In this situation, what would have been a panic is merely a credit squeeze.

So, how come banks are failing in our current panic? Basically, a lot of the banks aren't sound. Their assets, instead of being mortgages on local homes and loans to local businesses, are instead huge amounts of the sort of "securitized" debt that you've no doubt heard about--groups of mortgages, auto loans, credit card debts, and so on, all packaged up and divided into slices that were supposed to have predictable risk characteristics (but that turned out not to).

Presumably, not all the banks are in trouble. So, a second problem is that nobody knows which banks are solid, which banks are iffy, and which banks are just waiting for the coroner to sign the death certificate.

(That's why the Treasury's plan was to buy up a large amount of this securitized debt. The idea was, if you could put a price on those iffy securities, the sound banks could resume normal operation. If the price was high enough--higher than the assets are really worth--many of the iffy banks would be okay as well.)

The result has been a situation a lot like a classic financial panic, even without the issue of a shortage of physical gold.

A few words about gold

In panics past, the key winning strategy was to move to gold before banknotes lost all their value. I don't think that's a useful strategy this time. Gold may be a winning investment, but it lacks the key attribute that made it a winner in the past: it isn't cash.

Until 1933, contracts were often written in terms of gold dollars. If your banknote wasn't backed by gold--if your bank had closed or suspended payment--you couldn't use it to pay your bills. That's no longer true. The value of the dollar may soar or crash in terms of its international value and it may lose its value slowly or quickly to inflation (or even gain value due to deflation). But you can be reasonably sure a dollar will continue to be worth a dollar when it comes to paying your bills. That's something that people didn't have going for them in the panics of the nineteenth and early twentieth centuries.

Gold may (or may not) be a great investment, but it's a crappy way to pay your bills. For that, you need money--regular old bank deposits and currency.

The hard money folks like to say that gold is the one financial asset that isn't someone else's liability. In a world where many liabilities are not being honored, that's a big deal. But as long as your liabilities are in dollars (or euros or pounds or krona), you want to have cash on hand to pay your bills. For example, I'm just three months into a one-year lease. I know exactly how many dollars I need to pay to keep my apartment for the next nine months. I have no clue how much gold I'd need.

As an aside, it seems that there actually is a shortage of physical gold. Perhaps in part because a rather new fund (SPDR Gold Shares) has been buying huge amounts of gold and storing it in vault--enough that its gold reserves recently passed those of Japan. Fabricators of gold coins are having trouble getting their hands on enough to meet demand. That's a situation that can't last for long--people will bid up the price of physical gold high enough to draw those large gold bars out of the vaults. That makes gold sound pretty good as an investment--but it doesn't turn it into cash.

Strategies for survival

Knowing that the keys are liquidity and solvency, there are some obvious strategies to begin with.

Don't depend on credit. Arrange your finances so that you can fund everything with cash. If you're a business, this will inevitably make you less profitable, but less profitable is better than being out of business.

Keep your assets safe. Even if you avoid debt, you still have obligations that need to be met--rent, taxes, utility bills, etc. If your income is uncertain (and it is), then you want to have cash on hand to meet those obligations. Things like bank deposits (under the insurance limits), money market funds (now also insured), and Treasury securities are very safe and very liquid.

Cut expenses and diversify your income. Having liquidity is key in the short term, but over the medium to longer term the key is to make sure that your expenses don't exceed your income.

Later, buy valuable stuff cheap. As the panic winds down, large amounts of valuable stuff will be on sale cheap, because those who were not liquid enough will be forced to sell. If you've got cash at that point, you're in a position to make some outstanding investments.

These were the strategies for surviving panics in the past. They're still the strategies today. The one good thing about a financial panic is that it (unlike, say, a war) doesn't destroy the actual productive capacity of the economy. The factories are still there, workers are still there, the land is still there. Staying liquid, and making sure that your expenses don't outstrip your income, will get you through to where that underlying productive capacity can come to the fore once again.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Download the 451-page bailout proposal

Paul Michael — Wed, 01 Oct 2008 19:08:03 +0000

Well folks, I hope you have plenty of time on your hands. The initial 3-page document that Bush and Paulson put forward has grown somewhat. It's hardly surprising, considering how much of a broad sweep the initial bailout plan was. However, you have to wonder how many people out there have the time, patience and understanding to read a 451-page economic document. But, if you want, you can download it right here.

Simply click this link and you should be prompted to save the entire document to your computer. For those with slow connections, this could take a while. But certainly nowhere near as long as the monumental read that awaits you. A document like this could hide all sorts of legal loopholes and technicalities, so I hope there are plenty of non-partisan economists looking through this for the sake of every American taxpayer. Happy reading.

Note: This PDF was current at the time this article was published. These days, an hour is a long time in politics.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What's the big deal about banks refusing to lend?

Philip Brewer — Tue, 30 Sep 2008 21:15:16 +0000

Anybody--but especially frugal people--can be excused for thinking that the whole credit crisis thing is being overblown. After all, we get along without debt. In fact, we strongly recommend that others do so as well. If getting along without debt is the way to go, why make such a big deal over a credit crunch?

For an individual, there's a reasonable debt-free path to some sort of prosperity. You earn money, you spend less than you earn and save the difference. Over time you accumulate durable items that raise your standard of living for years to come; your income rises (as you become more skilled and prove yourself a reliable worker); you earn a return on your savings and investments.

So, what's the big deal? If everybody did that, we'd hardly need credit at all, and could just ignore credit squeezes. Right?

Consumer debt

That intuitive analysis really just covers consumer debt, which is not at the heart of the matter.

Consumer debt is a factor in the crisis, in that it has let people live beyond their means. That has produced an illusory boost to the economy, even as it has produced a shortage of savings. But a cut-off in consumer credit is not what people are worried about when they say that banks have quit lending (even thought it's enough all by itself to produce a recession, simply because consumers who had been borrowers will have to become net savers, if only because their access to credit has been cut off).

Productive debt

The shortage of credit that has everyone in a tizzy is credit used to buy productive assets. When a farmer borrows money to buy seed, that's productive debt. When a baker borrows money to buy a second oven, that's productive debt. When a huge utility borrows money to build a power plant or a water treatment facility, that's productive debt.

It's possible for farmers, businessmen, and giant corporations to get by without debt--but only as much smaller operations. So, there are two issues: the size of the enterprise, and the transition to being that size.

Enterprise size

WIthout access to debt, business size is limited by the amount of invested capital:

The farmer can't plant more seed than he can afford to pay cash for (after budgeting for fertilizer, fuel, and so on).
The baker finds himself turning away good customers because his one oven can only produce so much (until he saves up enough money to buy a second oven--something that might take years).
The utility can't expend to serve a growing population (except by retaining a decade's worth of profits).

This is not necessarily a bad deal for the business, if the enterprise is sized correctly. The baker with just one oven can only produce so much bread or pizza, so he only has to work so hard. Since demand is strong but supply is limited, it's possible to earn a good profit. You often see this sort of result in highly skilled crafts--a well-thought-of luthier might have an order book that extends out for months or even years.

When credit is available, this sort of situation doesn't develop, except for things like skilled crafts. Credit makes it possible for the business to expand. And if the business doesn't expand, competitors will move in to meet the demand.

When credit is tight, this sort of situation can persist for years (which can be very frustrating for customers, who can't buy what they want--because the guy who makes it is selling all he can produce to long-time customers).

Transition

Before we get to the tolerable (if sometimes frustrating) situation of businesses staying small even when there's strong demand, we have to get the businesses sized correctly. That can be terribly painful.

Many businesses are utterly dependent on ready access to credit. This is especially true of businesses with large capital demands, such as farms (where huge amounts of money are tied up in land and equipment) and utilities (where the capital takes the form of power plants, telephone switches, well fields, pumping stations, water towers, etc.), but it can be true of any business.

With much or all of their capital tied up in plant and equipment, the business uses credit to buy supplies and to meet payroll. If access to credit is lost, even for a couple of weeks, the business is no longer a going concern--invoices go unpaid and the payroll can't be met.

That's even true of a business that's not really operating on the edge. A successful farmer, for example, might have enough cash to finance his whole operation--buy seed, fertilizer, fuel, pay for maintenance, and so on--for a year. But suppose a poor crop this year leaves him with less cash next year. Unless he has access to credit, he can't make full use of his land and his equipment. If he's only able to plant and fertilize half his fields, he can easily enter a death spiral, never making enough money one year to make full productive use of his capital the next. In theory he could downsize the farm--selling some land, selling a big combine and buying a smaller one, etc.--but that sort of transformation is hard at the best of times and can easily be impossible in any particular year, especially if his neighbors are in much the same situation.

Other businesses face exactly the same sorts of issues--needing to sell equipment that they can't put to productive use because they lack the cash to buy raw materials, pay their employees and so on. But they too can't actually do so, because nobody else has the cash or the access to credit to buy the equipment.

Current situation

I mention all this because we're dangerously close to this situation now. Many businesses are unable to borrow. If this continues, they'll be forced to try to shrink--and many of those efforts will fail. Even where they succeed, the new business will be smaller--with fewer employees, less output, and lower profits. They (and their customers, and their suppliers) will all be buying less, meaning that other businesses--even ones that don't depend on credit--will have to shrink as well.

That's what a recession is, and this is shaping up to be just that.

For an individual, getting along without debt is a great idea--now more than ever. But for the economy as a whole, a credit crunch is hard on everybody.

What to do

Well, staying out of debt is a good start. Beyond that, it depends on how you make a living. Last year I wrote about preparing for a recession. That advice still holds, and it's not too late to prepare, even with recession staring us in the face.

If you're an employee, you're largely dependent on the success of your employer, and your employer's success will depend on its need for credit. If you have any visibility into that side of your employers operations, you can get a good sense as to how much risk a credit crunch poses. Note that being a great employee won't necessarily help in a situation like this. Many firms that lose access to credit will have to shrink by half or more, so plenty of highly productive employees will have to be let go.

As a special case of being an employee, if you work for something other than a business--federal, state or local government, a school or university, a charity, foundation, or similar non-profit--you may be in much better shape. Those sorts of institutions tend not to be dependent on debt to fund their day-to-day operations. They may see their income drop as charitable contributions and tax receipts drop--and they may well have to let employees go--but the aren't in the position of having to shrink their business instantly down to what can be funded on a cash basis. They're probably already there.

If you're a business owner, move as quickly as you can to get things on a cash basis. (I realize that this advice is coming rather late in the cycle.) If you've been using credit to bridge the gap between paying your suppliers and getting paid by your customers, this will admittedly require shrinking your business. There may not be time to wind things down gradually--you're probably better off immediately cutting whatever you can't afford without credit. A small business with one or a few employees is better than a medium-sized one with many employees, if the medium-sized one is in receivership.

If you're retired, the future is especially murky. The collapse of credit is hugely deflationary, and if that's all that happens, your cash and government bonds will do very well, and you'll come out of this in fine shape (unless you have too much of your retirement money in stocks). The bailout efforts, though, are largely inflationary. To the extent that they succeed, those stock investments may do okay, while the cash and bonds lose purchasing power to inflation. Worst case, we get enough inflation to destroy your dollar-denomonated investments without preventing the deflationary recession that wrecks your stocks, and then drives the economy down to the point where you can't get a job either. In that situation you have little choice but to opt out of the money economy all together. Let's hope it doesn't come to that.

No matter where you're starting from, though, recognize that these financial events affect production, but they don't affect productive capacity: The land is still there, the factories are still there, the equipment and workers are still there. Over time, things will work themselves out to put the productive capacity back into production.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: