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[ad_1] Do you remember all those soothing economic numbers that were floating around as recently as February? You know – the record low unemployment rate of 3.5%, and the record high stock market, with the Dow Jones Industrial Average closing at almost 30,000? It seems like ages ago, doesn’t it? The coronavirus happened and changed it all – in just three months. The stock market fell by a third before recovering somewhat in April, while unemployment exploded. It reached 14.7% by the end of April, with Goldman Sachs predicting it may go as high as 25% – a level not seen since the Great Depression. (Source: Trading Economics from data supplied by the U.S. Bureau of Labor Statistics) Since economic downturns are actually really normal events, the best strategy is to build financial resilience. There’s nothing we can do to stop a crisis from happening, but we can and should get our own financial houses in order to minimize the impact. The following 7 strategies will help you do just that. 1. Take Any Financial Shocks Off the Table One of the factors that characterizes economic downturns is financial shocks. One of the best ways to build financial resilience is to prepare for them. Start by reviewing your insurance policies. If need be, increase the amount of car insurance you have. It should be enough to protect your assets if you’re involved in an accident that’s determined to be your fault. If you do have adequate coverage, get some auto insurance quotes to see if you can lower your premiums. This is also an excellent time to purchase a private life insurance policy. If you’ve been relying on life insurance from your employer, that may go away if you lose your job. Check out options for low cost life insurance and get a policy today. And in case of an emergency, you may need a line of credit that can be accessed on short notice. Check with your bank or credit union to see if you can get an unsecured line of credit. Alternatively, you can apply for a personal loan, or even a low interest credit card. You won’t want to access any lines of credit now, since staying out of debt may be critical to your financial wellbeing. But you’ll want to have open lines of credit available when an emergency hits. Lenders have already started tightening up restrictions for making lines available a few months from now. 2. Cut Costs Wherever You Can Since income often becomes uncertain during economic downturns, cutting costs is one of the best ways to be prepared in advance. I’ve come up with 85 ways you can save money in your own household budget. By selecting and implementing just a few you may be able to cut hundreds of dollars out of your budget. And speaking of budgets, you should have one if you don’t already. Millions of people function without budgets, at least until an economic downturn hits. But sometimes all you need is the right budgeting software to get you moving in the right direction. Budgeting will show you exactly where your money is going and help you identify which expenses you can cut or eliminate. That will not only reduce your expenses, but it’ll also make extra money available to pay down debt or build up savings. 3. Pay Down Debt Ahead of Time One of the biggest expenses in many household budgets are debt payments. Whether it’s car loans, student loans, or credit cards, debt payments can take a big chunk out of your budget. If that’s true, begin to pay down debt now and work toward paying off as much as you can. You may need to implement some aggressive debt payoff strategies. If so, that’s best done sooner than later. If you lose your job, any payment you can eliminate or reduce will improve your resilience. If you have student loans, look into refinancing them while you’re still employed. Shop around for lenders that specialize in student loan refinances. Since these loans are often large, refinancing them has the potential to get you large savings from a lower payment. If you have credit card debt, take advantage of 0% introductory APR offers with balance transfer credit cards. Getting a break on interest for 12 to 18 months can help you pay down your credit card balances a lot faster, since the payments you would allocate toward interest can be made toward principal. 4. Pad Your Emergency Fund One of the very best ways to build financial resilience into your life is by loading up your emergency fund. Even if you already have one in place, now is an excellent time to begin increasing the balance. During economic expansions, having between one- and three-month’s living expenses in your emergency fund may be sufficient. But in an economic downturn, you may need to expand that to six months or longer. Sure, you may get unemployment benefits if you lose your job. But that probably won’t come close to replacing your current income. Just as important, emergencies have a way of popping up during times of economic turbulence. The more money you have sitting in your emergency fund, the better you’ll be able to weather it all. If you’ve got your emergency fund sitting in a local bank or credit union, you’re probably earning interest of something only just above zero. You can and should fix that problem. There are high-yield online savings accounts paying interest rates as high as 2%. That may not sound like a lot of money, but it’s more than 20 times the 0.06% being paid at average banks and credit unions. You owe it to yourself to earn as much interest on your emergency savings as you can get. 5. Establish an Advanced Savings Strategy While an emergency fund will protect you against short-term expenses and income disruptions, now is also an outstanding time to begin building savings for longer-term needs. One such

[ad_1] Another summer evening skate-n-scoot outing with Mini Me It’s Back to School time here in Colorado, which means both my son and I will be hanging up the swim shorts and kayak paddles and getting back to more serious business for a while. It has been a slow and endlessly sunny and leisurely summer, and a nice break for both of us, which has been very relaxing and a great time for bonding. But relaxation has its limits. At some point all that Chilling Out fades its way into Complacency, and our natural Human nature starts to work against us, telling us to conserve energy and not really do much of anything. And laziness begets more laziness, and life actually becomes less fun. You can see this effect in our activities. I’ve only completed two blog posts over the entire summer holidays, and together we have put out only two YouTube videos. Spending more time at home and less at the MMM Headquarters squat rack has caused me to lose at least five pounds of leg muscle that I had wanted to keep. Little MM has spent a lot less time practicing on the upright bass and putting out songs, and a lot more time playing video games and getting sucked into the “dank memes” and “Trove” channels on Reddit. It has been a fun break, but as the freshly polished school buses awaken with the sunrise, it will be even more fun to get our own lives cranking into a higher gear as well. And if you’re reading this, it means I am off to a great start! Complacency Is Expensive This laziness was affecting my financial life, and your financial life too. I had let thousands of dollars of uninvested cash build up in my checking account, where it was sitting around earning nothing. My credit card bills had come in, been automatically paid, and filed themselves away without me even reviewing them for fraudulent transactions or wussypants spending on my part. And I had a growing mini-mountain of things I need to do regarding insurance, accounting, and legal stuff in both my personal and business domains. And yet once I got my act together last week, I cleaned up the whole mess and set things straight in less than an hour. It’s not Just Me, it’s You When I talk to friends and family, I notice a common theme: they tend to set up certain “hassle” things once, and then ignore them as long as possible unless some absolute crisis comes along and forces them to make a change. “Oh, I just do all my insurance stuff with Jim Schmidt’s Insurance office downtown, because my parents referred me to him when I first moved out for college. Even better, his wife Jane runs a loan brokerage, so she handles all our family’s mortgage needs!” On this surface, this sounds fun and folksy and like a nice way to do business. And that is exactly the way I like to live: keeping my business relationships as casual and fun as I can. But when it comes to money, complacency can come at a price, so at the bare minimum we should find out exactly what price we are paying. For example, just recently a coworking member came to me and asked for some financial help. And as always, I suggested we start by looking at big recurring expenses. So we dug into the details of her insurance and other major bills streaming in from ol’ Jim and Jane, and found an interesting breakdown: Required liability coverage on a 2010 Subaru Forester: $580 per year Optional collision and comprehensive coverage ($500 deductible): $360 per year Home insurance on a 2000 square foot house ($500 deductible): $1450 per year Mortgage interest on a $300,000 loan at 4.85%:  $14,550 per year Student Loan interest on an old $35,000 student loan at 5.5%: $1925 per year Total: $18,865 per year. It’s no wonder my friend was having financial stress – she had interest and insurance costs that were soaking up half of a reasonable annual budget before she could even buy her first bit of groceries or clothing. So, right there we did a quick round of phone calls and online quotes, and streamlined a bit of the insurance coverage by increasing the deductibles. Within 90 minutes (she did most of the work while I had a beer and swept the floors of the HQ), we had the following new set of options: Subaru liability coverage: $380 per year ($200 savings) through Geico Removal of collision and comprehensive (in the unlikely event of a crash, they could afford to replace the car with less than two months of income) ($360 savings) Home insurance on a 2000 square foot house ($5000 deductible): $650 per year ($800 savings) through Safeco Refinanced mortgage to 3.375% through Credible.com*: $10,125 per year ($4,425 savings) Refinanced Student Loan (also Credible) to 3.85%: $1347 per year ($578 savings) New total expenses: $12,502 ($6363 per year in savings!!) It is hard to even express the importance of what just happened here.  My friend just did two hours of work in total while drinking a glass of wine,  and dropped her annual expenses by over $500 per month, or six thousand dollars per year. And she will of course invest these savings, which will then compound to about to about $86,000 every ten years.  Even if she has to do this annual round of phone calls and websites once per year to maintain the best rates on everything, she will be earning about $3150 per hour for this work. Hence the bold title of this article, which you can now see is very conservative. The Optimization Council The first Optimization Council meeting at MMM HQ So you’re convinced. $3150 is enough to get you to pick up the phone, but how do know who to call? Who is going to be your coach if you don’t live near Longmont and thus can’t just join the

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[ad_1] As a general rule, Mr. Money Mustache avoids reading the daily news and ignores the fluctuations of the stock market. And he advises you to do the same thing. The negative factors of wasting your time, diluting your precious brainpower, and creating undue stress by worrying about things outside of your circle of control far outweigh any slight advantages you might get from the tiny slice of news stories that are actually useful and relevant to your daily life. But on very rare occasions, something will squeeze its way through the News Sphincter that is worth addressing, and last week I learned of one of them. The basic idea was this: Image source: BloombergIf you’re not a finance nerd, the phrase “Like Subprime CDOs”, just means “really bad”. Michael Burry, who in my opinion is a relatively brilliant and well-known financial figure, voiced his concerns that we may be inflating a big bubble by concentrating too much of our money in passively managed index funds. And because I have been telling you since the beginning that index funds are the best way to invest, my email inbox and Twitter feeds started filling with concerned questions and links to his interview on Bloomberg, asking if we should be taking this seriously. So is it a big deal? Should we be worried? The quick answer is No. And we’ll get into the full explanation below, but first let’s do a quick review of Index Funds in general. Why Index Funds are Great Index fund investing is both the simplest and the highest performing way to invest your money. It’s as simple as getting any brokerage account and buying the Vanguard Exchange traded fund called VTI, or getting a Betterment account and setting your allocation to at least 90% stocks. It’s the ultimate win/win because you just set it and forget it. Both the math behind it, and the historical performance for the past 40 years (since the invention of index funds) has proven this out. Yes, a small percentage of actively managed funds have beaten the market, and a larger percentage have trailed the market. But this over and underperformance itself tends to be random, and today’s winners often become tomorrow’s losers. A bowl of actively managed funds. Can you pick the winner? And here’s the real problem: you can’t predict in advance which of these horses you are betting on. So your best bet is to ride directly in the middle of the pack, while minimizing the fees you pay for the privilege. But suddenly, Michael Burry says we are reaching the point where this model may soon stop working. So who is right? Mr. Money Mustache or Michael Burry? Have I been naively misleading you? And what about the reassuring words of Jim Collins in his book The Simple Path to Wealth or rather amusing Guided Stock Market Meditation he put up on YouTube? Is Jim full of it too, in light of these new comments from a financial expert? Now, we are already treading onto thin ice here, because similar stuff is in the news every day, and most of it is junk. Financial ‘experts’ are a dime a dozen, and just because somebody got something right once (in this case predicting the 2008 financial meltdown), doesn’t mean they will be right in the future. Because the financial news industry is powered by profits which come from clicks and traffic, their job is to shock and worry and distract you as much as possible so you will click your way through more of their bait. Within the context of that single Burry interview, for example, I saw the following bits of “Breaking News”: Big gain! (never mind that aside from meaningless fluctuations, the market has gone exactly nowhere in the past nineteen months since January 2018) Down Six Percent! (Oops it was back up to those highs by the time I checked) Triple digits! (oh, wait, that is less than a third of one percent because the index is about 27,000) Volatility! Impact! (oh wait, that is all just the random fluctuation it always does and it means absolutely NOTHING to you as an investor) NONE of these things are the least bit newsworthy, and they shouldn’t even be mentioned in a footnote, let alone labeled “Breaking News.” So, stock market reporting is silly, and predictions of doom should be viewed even more skeptically. Because the nature of our economic system assures that virtually 100% of predictions of financial doom will always be wrong, because we are not really all doomed – the future is very bright. However, I’ve read a lot of Mr. Burry’s writing and have more respect for his analysis than that of permanent fearmongers like Peter Schiff or Dmitri Orlov. So I pay attention to his opinions, even when they differ from my favorite permanent realist-optimists Warren Buffett and Bill Gates. So the summary of his argument is this: Passive investing tends to distort the prices of individual stocks, because we buy everything in a fixed ratio without considering the value of each company. The “exit door” is small – there is a lot of money invested in fairly small companies whose shares are not frequently traded. So if we all tried to sell at once, we’d have way too many sellers and very few buyers. This would cause a massive price crash in the stock prices of these small companies. There are some complex bits under the hood of index funds – things like options and derivatives that can break under stress and cause money losses or more volatility. Now at this point, the stock traders and active fund managers are probably cheering and jeering at us: “YAY! Told you all along – come back to us where you belong. We are well worth our much higher fees because we are gonna beat the market! Just look at this cherry-picked data from the current ten year bull market!” But instead of picking a fight, let’s just

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