photo credit: pingnews.comWith all the uncertainty in the stock market and the world economy, it is time to make some changes to our family’s finances. Nobody knows what the stock market is going to do in the next several months. My gut feeling tells me it has a lot further to drop, despite any recent upswings in the market and any potential government bailout. I fear that the banking sector’s recent collapse is only a small precursor to a widespread downturn. My biggest concern is that companies who rely on loans and credit to pay for things will be shut out and forced to make job cuts. That is when the average American will feel the real brunt. I have put together a list of items that I will be implementing in the next several months to help shelter my family from any personal financial meltdown. While I believe the company I work for is in good financial shape and my job is safe, I am concerned about the overall outlook.
1 - Earn Extra Income - In the near term, I plan to start working on earning more alternative income. You will notice that I have already increased the number of sponsored posts that have been included on PFI in the past week. I use to keep these paid posts within the overall personal finance theme up until last week. I plan on writing more and more posts that may not always be centered on money and finances. I believe I can make close to $100 in extra income per month by spending a few hours on these posts.
There are several other ideas out there that I am working on to generate extra income that I will share later. For other ideas, check out The Passive Dad for a list of resources and ideas on ways to earn quick money during an emergency.
2 - Update Prosper Loan Criteria - Loaning money on Prosper is one of my passive income streams that I currently earn income from. I bid on loans that meet a certain criteria using Prosper’s customized search. I will be tightening my lending standards in anticipation of fellow borrowers not having the money to pay back their loans. I currently screen bids on Prosper with credit grades = ‘AA’, ‘A’, ‘B’, ‘C’, ‘D’. I am removing all ‘D’ credit grades from my screening process and will be cautious loaning money to any ‘C’ credit grades.
The more important change to my screening criteria will come from the bid Loan Amount. I currently screen all loans under $15,000 and look cautiously at anything over $10,000. I now will be reducing my criteria to screen for loans less than $7,500 and will look cautiously at anything over $5,000.
I have helped to fund over 50 loans on Prosper over the last several months. I am starting to see some trickle down effect of the nations credit crunch. Recently, the borrowers of 2 of my loans have filed for bankruptcy. I anticipate the number of these bankruptcies to continue and am planning to reduce my exposure.
3 - Reduce New Prosper Loans - As I mentioned in item #2, I currently have over 50 loans using Prosper to make extra income. I typically fund anywhere from two to four new loans per month on Prosper. I automatically transfer $25 each week from my checking account to assist in the funding process. This translates to $100 in new cash available to use, along with interest earned over the month, which currently is around $30. Effective today, I will only be transferring $25 per month (not week) to help fund new loans. Using the combination of the new cash and the interest, I still should be able to fund at least one new loan per month. This move will slow down my long-term goals for my Prosper income stream, but one that I think is important to make.
4 - Cut All Unnecessary Spending - With the holidays coming up, my wife and I are already setting out our seasonal spending budget. We are planning on reducing the amount of money we spend on each other and our family’s for holiday gifts. In fact, we have already been shopping for toys for our boys by snatching up some great clearance items that were left over from the summer.
In addition to cutting our holiday spending, we have put off the purchase of a living room outfit and other items for our new home. We have this money saved up in a CD that is about to expire and had picked out the furniture we were going to buy. We are now looking at putting this money aside in case we need it down the road.
Finally, we are thinking long and hard about each and every item that we may want to purchase. This includes food, apparel, and entertainment. This is something we had hoped to do regardless of any financial crisis.
5 - Adjust Existing Cash Accounts - Our family has 5 CDs consisting of over $40,000 which is set aside strictly for emergency funds. These CDs expire over the course of a couple months throughout the year in the event the money is needed. Typically, I look at 18 month – 24 month CDs as they have provided the best rates. I will probably look to lower the frequency to less than 12 months in the short term once the existing CDs expire. This will allow for more frequent access to this money.
6 - Save Cash - The major theme of the points above is to free up as much cash as possible in the near term. That cash will be going directly into our new ING Checking Account. This account is earning 3% and is a nice safe return given the state of the economy.
Having this available cash will first provide us with an immediate emergency fund if we need it. Secondly, this cash will provide resources that could be used to pick up some high quality stocks that have been beaten down. Either way, I think it is imperative to build our cash position in this current economic climate.
Final Thoughts
I am sure we will come up with more ways of making extra income and saving more cash, but those are just a few that we will begin this week. I have also started to put together a long-term list of items that could be implemented if economic conditions deteriorate worse than I am expecting. For example, if I were to lose my job, I have a list of things that I would do immediately to get us by until I found another job. I am not thinking these events are the end of the world and I am not trying to paint a doom and gloom picture. I just believe that it is very important to be prepared!
What are you doing to plan for any greater financial meltdown?
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Dawn 10.01.08 at 2:58 pm
A friend of mine just lost his job today. That has been making me thing about all the things you have talked about here - building and creating an emergency plan as well as just hunkering down and being as frugal as possible.
Scott @ The Passive Dad 10.01.08 at 6:21 pm
You are absolutely correct about taking the time to build up cash reserves and find extra income sources. With all the bank consolidations, you would naturally think that obtaining credit will be more difficult. Less lenders to compete for rates, will make it more difficult for small businesses. I have friends who have already received bank notices that HELOC are being trimmed or cut. This is absolutely amazing to watch unfold before our eyes.
Thanks for the link too.
Enusual_Murray 10.02.08 at 8:10 am
Pardon the plug but another tip worth considering to save cash may be to try social shopping & bargain hunting sites like our newly launched enusual.com
Jake 10.04.08 at 10:39 pm
I agree with all of the above accept “Save Cash” I really feel we have bitten off more than we can chew. This bailout won’t do much of anything accept delay the inevitable, the inevitable being another few trillion dollars pumped into the banking system.
I’ve been trying to think of ways they can prevent the dollar from collapsing but personally I no longer think our government is equipped or willing. - I’m starting to become bearish on all paper currency -not only the USD. Canada is pumping money into their Economy and Europe is doing the same - Inflation is going to be rampant. The only way to have a true emergency fund is by purchasing tangible assets - Gold, Silver, Platinum, Palladium.
Tradnnut 10.07.08 at 1:08 am
I agree with Jake, I would buy up staples such as food, toilet paper, clothing etc. all the items necessary for life. Those things are always tradeable and have an inherint value. I don’t want to sound like a doomsayer and I am an average joe like everyone else. Gold and silver is in short supply and is expensive, if food is in short supply gold will not help you. However with all the doomsaying that is going on and the speculation all over the place I have enacted the doomsday scenerio for my family and I am building shelves in my basement and stocking up on staples to last at least a year which will cost me about $8000. I have one position remaining in the stock market, I own real estate to generate an income and I have a very stable job in the government. If the dollar devalues it will not matter how much money you have it will cost $40 for a jar of peanut butter if you can find it. Stock up on supplies and pray for the best.