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Eye on the ‘Fiscal Cliff’ Part I: Four Ways to Prevent Going Over Your Own Cliff

Dec. 11, 2012 1:15pm Guest Post

[Editor’s note: The following is a cross post by David Bakke, a contributing writer for Money Crashers Personal Finance, a website dedicated to helping readers improve their "financial fitness" by getting out of debt and building long-term wealth]:

The looming economic crisis, aka the fiscal cliff, has been years in the making. To stop runaway government spending, Congress got serious in 2011 and enacted the Budget Control Act. Not unlike a ticking time bomb, it was enacted to ensure that the country would make necessary changes to get itself financially on-track by the end of this year. However, sufficient changes haven’t yet been made, and the country is about to suffer serious consequences. Higher taxes, more unemployment, and another recession are all likely unless we act fast.

In addition to shoring up your finances for a potential economic disaster, take the opportunity to see if you’re headed toward your own fiscal cliff. Have you spent years accumulating debt? Do you have a hard time making sacrifices today to prepare for tomorrow?

If so, it’s time to act fast to keep yourself from going over the edge.

Organize Your Finances

The first step to see where you’re at and where you’re headed financially is to become organized. If you don’t have a good filing system for bills, receipts, bank statements, and income statements, get one in place. To be more streamlined, sign up for e-billing and electronic statements, and file these on your hard drive. Scan paper statements and shred hard copies to reduce clutter and prevent identity theft, and make sure your computer is password-protected. To keep yourself on track, schedule one or two days per month to pay bills and update your filing system.

Establish a Budget

Once you’re organized, the next step is to create a personal budget. If you don’t know where your money is going or how much you’re spending, finding ways to cut back can be extremely difficult. Use your monthly statements to itemize and categorize your monthly expenses. If you regularly withdraw and spend cash, start saving your receipts and make it a habit to record them in a spreadsheet on a weekly basis.

Itemizing expenses by category shows you where you spend the most money and helps you to identify hidden areas of expense. You should classify each individual expense as a “want” or a “need.” Then, review your wants and challenge yourself to eliminate as many as possible. Once you’ve established a target amount to spend in each category, hold yourself accountable with a budgeting app (such as Mint), or implement an envelope budgeting system. Also, use your budget to identify better uses for your funds, such as paying down debt, adding to your retirement fund, and growing your emergency fund.

Prioritize Retirement

The majority of Americans are vastly under-saved for retirement, which presents an interesting parallel to the country’s fiscal cliff scenario: Thinking too much about the short-term and not enough about the long-term is what led the Federal Government to its current impasse. If you aren’t yet facing retirement, you still have the opportunity to avoid a similar perilous fate. Therefore, you must prioritize your budget. What are you able to give up today in order to secure a better tomorrow? How can you reduce expenses or services that you don’t really need?

For example, lowering a bill by $10 per month may not seem like much, but it adds up over the course of a year – especially if you can find 5 or 10 additional ways to save another $10 per month. Contribute these savings to your 401k plan, especially if your employer matches your contributions. Or, if you qualify, save your money in a Roth IRA, which does not penalize you for withdrawing contributions before you turn 59 1/2 years old.

Prepare for Emergencies

In addition to saving for retirement, saving for emergencies is crucial. Emergency funds should be stored in a regular savings account, money market, or even in a laddered CD – but however you save this money, you need the funds to be easily accessible. The idea behind an emergency fund is not only to avoid racking up high-interest credit card debt in the event of an emergency, but to protect yourself in case you lose your stream of income. At the minimum, you should have at least six months’ worth of living expenses in your fund. However, if your income fluctuates, or if you live in a one-earner household, you should likely save even more.

Final Thoughts: Many people are facing their own fiscal cliffs, as they too have been affected by the predominant American ideology: Live for today. This may be a good sentiment, but in order to live well every day, it’s necessary to exercise restraint and save for tomorrow.

The world has changed and will continue to change. Relied-upon standards such as Social Security (already a shadow of its former self) and Medicare will not be remotely adequate to secure your retirement, and debt isn’t so easy to escape anymore. If you haven’t already, it’s time to get serious about your finances to survive any economic downturn.

What are you doing to prevent going over a personal fiscal cliff?

–

Click here for Part II of our “Eye on the Fiscal Cliff” series

In CONTROL, Glenn Beck presents a passionate, fact-based case for guns that reveals why gun control isn’t really about controlling guns at all; it’s about controlling us. Find out more HERE.

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Comments (22)

ginge
Posted on December 12, 2012 at 8:26am
Don’t sell your house. Make sure you get the mortgage paid off. At least you will have a place to live. After that you will only have to worry about paying electricity,water and gas. Food is going to go through the roof. Start putting some food away. Put some water away. Oh save for paying property taxes.
There is nothing good coming down the road. We are on the UN list to go down.
Got it?

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- EdgeOfSanity
  Posted on December 12, 2012 at 11:49am
  Don’t forget to put money aside monthly for real estate taxes and insurance. You can add all the bills that are paid once or twice a year and divide that amount by 12 and put that aside monthly. That way there won’t be any nasty surprises.
  
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- EdgeOfSanity
  Posted on December 12, 2012 at 11:51am
  When your car is paid off keep making the payment to your savings so when you need a new car you can either pay cash for it, or you will have a substantial down payment and you can negotiate a better price.
  
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- EdgeOfSanity
  Posted on December 12, 2012 at 12:01pm
  For food storage if you are on a budget and can’t afford those they sell online, buy a dehydrator and vacuum sealer and make your own. Just did 9 pounds of bananas and cost less than $6. For beginners there are good clips on http://www.dehydrate2store and you will be surprised at how easy it is . . . and a fun activity for your family. Make jerky for gifts for friends for Christmas.
  
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bhosux
Posted on December 12, 2012 at 8:16am
On which Friday will Boehner and the GOP cave in to the liberal Kings?

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DougHuffman
Posted on December 11, 2012 at 4:01pm
So, we’re all ready to pass through the eye of a needle on our way to Heaven, while Obama is only fit for a camel’s arse and a big one at that.

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- Tom70
  Posted on December 12, 2012 at 11:47am
  He already has the huge ass he’s married to it. My be one of the many reasons he want s to screw all of us angry old white people.
  
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girlnurse
Posted on December 11, 2012 at 2:51pm
Right! LOL. This article assumes we have money to budget! And where is the Lord in this equation? You can make your plans all you want but obviously all the money on this earth will one day rot. Besides, as many have already pointed out–this mafioso will just take it if they want it, so what good will it do?
#1 on this list should be this:
“But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’ Luke 12:20

#2 “But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal”. Matthew 6:20

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CWPrequired
Posted on December 11, 2012 at 2:41pm
Invest in lead. When A Nation Forgets God- great book people. It’s the left playbook all spelled out for ya.

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cessna152
Posted on December 11, 2012 at 2:24pm
Retirement? How do you suppose one prepares when you put into savings, 401K, Gold, silver and lead…if the government confiscates it?! Screw that, I’m spending it now before these freaking Nazi/Statists steal all of it or destruct it via hyperinflation.

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- MN NICE
  Posted on December 11, 2012 at 2:52pm
  Really… It’s looking more and more like death will come before retirement… And at the pace things are going, we won’t be able to afford to die!!!
  
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mellowlady
Posted on December 11, 2012 at 1:57pm
What is this “money” that you speak of?

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- bigdog71360
  Posted on December 11, 2012 at 2:42pm
  that’s funny!
  
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toledofan
Posted on December 11, 2012 at 1:54pm
I sure hope we go over soon, this whole episode is just getting dumber by the day. Boehener is, again, negotiating with himself, Obama has no intention of cutting any spending, and those who want to punish success ultimately will punish themselves. So, lets do this and move on. I mean we haven’t even address the debt ceiling, that will be another monumental fiasco as well.

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ArmedAndReallyPissed
Posted on December 11, 2012 at 1:49pm
This article means nothing after seeing this previous one :Obama Admin Going Ahead with F-16 Shipment to Muslim Brotherhood-Ruled Egypt……..Who gives a rip about this stupid cliff ? We all better decide how we want to meet out maker. By Bullets, Rockets or Nukes dropped on US from OUR OWN JETS. IMPEACH THE CLOTUS NOW.

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Gary_K
Posted on December 11, 2012 at 1:42pm
If you are not already prepared its almost too late.

BUY FOOD !

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- DougHuffman
  Posted on December 11, 2012 at 1:50pm
  For those preppers planning to move from the city to rural and/or unpopulated areas, it is too late, I’m here already, in place and ready.
  
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trinity76
Posted on December 11, 2012 at 1:39pm
It’s nice to see someone at The Blaze going back to basics, since a lot of Glen’s focus has been on how people in a decent financial situation can better prepare themselves.

In the last several years, I have undergone a severe financial shakeup, including ch. 13 bankruptcy and danger of foreclosure. We have decided to get rid of our house, ideally putting it on the market this spring.

So…here are a couple of my suggestions to avoid getting into a similar situation.

Home Equity Loans/Lines of Credit are a double-edged sword. If the worst happens, and you find yourself in a bad financial position, those second/third liens on your property will make everything more complicated. In most cases, only a chapter 7 will dissolve those liens. There are many cases where people have been liable for the home equity debt even after foreclosure or short sale of their house.

Secondly, if both spouses work, find a way to live off only one income. This is what we’re planning to do after selling the house. It will make a lot of difference in the long run, and is better insurance for either spouse loosing their job or becoming disabled.

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Rothbardian_in_the_Cleve
Posted on December 11, 2012 at 1:38pm
Prioritize your retirement? Ha!! Um, hate to be the bearer of bad news, but that is pure folly. The tax increases that are being proposed will run the government for 8 days. That is BEFORE obamacare deficits start kicking in. There isn’t and never will be enough income tax collected to fund the government. The ONLY option left (before total collapse) is the confiscation of wealth. This happens two ways. First is through inflation. Massive inflation. It will steal all of your purchasing power and market returns will not keep pace seeing as how they are risk adjusted and taxable. Secondly, is that the 401K route will be closed and eventually your account will be raided and replaced with government bonds and a promise of future government funded income.

I save. I have a 401K and a pension and non-qual accounts, some physical metals, etc. I do it knowing full well the end game though. I know it will be wiped out, but I refuse to be one of those people who says “screw it” and accepts the government scenario. Maybe, I’ll be able to sneak some wealth through the dragnet. Probably not though.

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- circleDwagons
  Posted on December 11, 2012 at 2:37pm
  Yup, if the government wants our money they will just take it. Besides it is not ours to begin with. We did not build that. If one has gold he better hide it well and be ready to be tortured.
  
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- Brooke Lorren
  Posted on December 11, 2012 at 3:04pm
  I agree. Right now, I don’t plan on retiring… or at least, retirement will consist of living off royalties from things that I do today… if the government doesn’t also take away my Intellectual Property. I’m guessing that about 10% of my income comes from foreign sources. That might help during hyperinflation, but only if the companies that I sell through can continue to make the things that they make.
  
  I used to have money, and I don’t now, because our family made a major career change about 10 years ago and dh went to law school. We can barely afford to pay our $650 a month rent, let alone save for retirement. That could change when dh gets out of law school in the spring, but with what’s going on right now, I don’t count on it. The good thing about not having any material wealth is that there’s nothing they can take from you.
  
  The good thing is, what I do have is knowledge and skills. While there are ways that governments can take that away from people (forced drugging, disabling people), it’s a lot harder.
  
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- Bonnieblue2A
  Posted on December 11, 2012 at 5:00pm
  You missed one of the ways in which wealth is confiscated. That is re-valuation of our currency (see what the FED is doing right now). Inflation is a symptom of the revaluation via the FED’s endless QE. The re-valuation is the only way in which the interest on the debt can be maintained.
  
  Last month an economic summit of the major players in Asia, attended by Obama himself, went largely unreported by the MSM in the US. Why? Because at that summit approx. 1/2 of the worlds population turned its back on the US economy and told Obama that they did not want the US as a trading partner.
  
  What happens when trillions of US dollars return to the US because the Asian countries will no longer be using the US dollar?
  
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