Personal Financial Responsibility

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After recently watching Maxed Out and listening to the different heart-wrenching stories, I got to thinking about all the similarities among the families facing serious debt. The same variables popped up in other documentaries I watched, too, like Sicko. I also noticed that these movies offer a thorough view of the problem, but either only a brief solution or none at all. This has made me passionate to share with you all the parts of what I call "personal financial responsibility."

It may not be easy to do all the things below, initially. But if you seek out Dave Ramsey or a similar plan and start making changes to your life in baby steps (and possibly read some of my previous blogs on money saving and budget making), you CAN do all of these. The steps below are what I consider a minimum to being financially responsible, so that no matter what crisis occurs, what disaster, what economy, you will be stable and secure.

1. Get health insurance
Examine what plans are available to you and select one that covers what you need. Be sure to look for any and all traps: a super-high deductible, long list of "not covered" items, difficulty getting to any specialists or alternative doctors, life time maximum benefits, etc. Ideally, an HSA is a good idea, with a reasonable deductible ($5000 or so), with extremely high life time maximum (over $1 million) or NO life time maximum, and good coverage (covered in all areas, while on vacation, choice of doctors and hospitals, low co-pays or no co-pays for routine care). Even if you are single you CANNOT afford not to have coverage. You could get sick or in an accident at any time and if you do, you need to know you are okay. Especially if you have a family, you need coverage. There is NO excuse for having tons of medical bills if you don't have insurance and could have.

2. Get life insurance
If you are single or childless this may not be a huge deal or necessity. But if you have children and/or are supporting your spouse, you must have it!! If you're single, it's still a good idea to have it to cover funeral costs, though you won't need as much coverage. $500,000 or more is a good idea so that all funeral costs are covered and a few years of living expenses. Remember that if you have children and someone dies (even if it's the stay-at-home parent), there will suddenly be daycare costs and other things you didn't have before, so you NEED it. We have $600,000 on Ben and $400,000 on me.

3. Save up at least $1000 in an emergency fund
This is how you avoid using credit cards for all those little things like your car suddenly needing repairs. You have an emergency fund and you have access to it whenever you really need it. The more you can save, the better, because we all know that sometimes, emergencies are expensive. REALLY expensive. If you don't have an emergency fund (and especially if you also have debt), you're asking for trouble.

4. Create a budget
Where is your money going? Get on a real budget and find out. Keep close track of your money so that you know where every dollar has gone. Most people are surprised to find how much they've really spent in some areas. With a budget, there are no surprises, and chances are you can find a little extra if you need to one month.

5. Reduce spending if necessary to live below your means and/or get another job
If looking at your budget shows that you're currently spending more than you earn (as most do in this country), work hard to reduce your spending so that you are spending LESS than you earn. If that is not possible, take a second job so you earn enough to cover your living expenses. You have to live within your means. If you don't, you're taking a huge gamble and could easily lose it all with just one unfortunate event.

6. Pay off debt: credit cards first, then car loans, then student loans, then mortgage
When your debt is paid off, your money is yours. You don't owe anyone, so if anything comes up, you have all the money you've earned to work with. Owing someone is not a position you want to be in, anyway. Look up what the Bible has to say about owing people money: it isn't pretty!

7. Save up for any future major purchases (cars, furniture, homes)
You will want to have nice stuff, of course. But you don't have to go in debt to do it. Save up money and put it in savings accounts, or CDs, or even other types of investments (depending on how long you have to save and how much the final purchase is). When you do buy the item, it's YOURS. Nothing can happen to it if you lose your job tomorrow. There's no worry over how you'll pay your debt if you don't have any. This is the responsible way to own nice things.

8. Invest for retirement and/or college
Don't expect the government to pay for your retirement (or college, of course). Save up the money and pay for it yourself. Invest your retirement money is high-yield, high-risk stocks if you are under 40; stick with a more conservative plan if you're older (and of course, seek out the advice of a qualified investment manager or stock broker or other expert, because I am not one). You can easily save up enough money to pay for college and get you through retirement easily.

Bonus:
9. Create a larger emergency fund (6 months of living expenses)
If you get laid off and have 6 months worth of living expenses saved up, you don't have to worry at all about finding another job (right away). You'll know that your family is taken care of and you don't even have to cut back at first. You will make that next mortgage payment (if you haven't paid it off), you will have food for your table and gas for your cars. You can put all your energy towards finding the perfect job, instead of worrying how you'll pay your bills.

10. Step up retirement investing
If you've got a large emergency fund, and all your debt paid, go ahead and put even more towards retirement. The worst that can happen is that you'll need it sooner than you've planned, but you don't have to completely deplete your savings to pay for whatever happened (i.e. medical emergency not covered by insurance -- but make sure you have insurance!!).

If you follow the steps above, you CAN live the American dream. Rely on God and yourself first and foremost; NOT your government or other people. Governments can have problems, economies can collapse, people can break promises. If you have insurance and savings and you are living below your means, you will always be safe, even as people around you who have debt and who are living outside their means suddenly feel hopeless when an unexpected financial crisis occurs.

This is just another in our series on personal responsibility.

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