The Average Joe Surviving the Economic Meltdown
September 21, 2008 7:31 AM   Subscribe

Surviving the Economic Crisis: What practical things can the "Average Joe" do to prepare for an economic meltdown?

I'll admit it. I'm spooked by all of the talk of an economic meltdown and have decided for better or worse that because the talk is from expert analysts and Washington economists (who usually never admit that they are in trouble) rather than street corner "doom-sayers," there might be some credence to the claims that we are seriously in trouble.

I am an average person who has an average family with a very average job. Given this, what should I buy for my home or what should I do with the money I have in the bank or what should I do with little spare money that I have just in case this is- in the words of Fred Sanford- "the big one."

Just to give you an example of what I mean, I just bought a s---load of rice yesterday because it stores well and have also decided to make sure to have at least 6 months of bill money in the bank. Websites, articles, etc... would be a great help also.

This sounds like a survival thread, and I guess in a way it is. Thanks all and ..Good luck.
posted by boots77 to Work & Money (22 answers total) 10 users marked this as a favorite
Leave your credit cards home. Put some extra money in the bank. If this is the big one such that your bank deposits disappear (they are US government backed to $100,000 per account etc.) then you will have bigger issue then money. Relax and be conservative in your spending.
posted by caddis at 7:44 AM on September 21, 2008

Jokingly, buy guns, gold and GORP. Seriously, make sure your accounts are insured by FDIC or SIPC. Liquidity has been a problem, so if you have upcoming cash needs that may require a loan, that may be more difficult in the past. I'm curious as to why you bought the rice. Is it an inflation hedge or protection against food shortages?
posted by Frank Grimes at 7:49 AM on September 21, 2008

First, take care of everything that has major uses outside The END OF THE WORLD. Learn skills to make yourself more self-sufficient, like first aid. Get a supply of any medicines you need, and take care of any medical issues you've been putting off. Get things like a water filter, that have more than one productive use.
posted by StrikeTheViol at 7:58 AM on September 21, 2008

The fundamental error is failing to learn from history. History teaches that all bubbles burst, and smart people limit their risk and cash out well before it is obvious that they should do so.

While I firmly believe that there is no "economic meltdown" coming, history teaches you what you need to know about them.

Meltdowns are always accompanied by mass unemployment. That dictates savings as a priority above all else. Meltdowns sometimes are accompanied or caused by severe inflation. That dictates that you hold a significant portion of your savings in assets other than cash. Non-perishable food could be seen as "savings" in that inflation-immune sense.

In the developing world, meltdowns have sometimes seen law and order break down along with basic public services, but that's never been the case in any western democracy, even in profound panics -- so you probably don't need guns, ammo and a big supply of fresh water.

The political change that would be likely in a meltdown would be massive government intervention in economic life, much of which is never reversed out after the disruption ends. Friends in politics and government would be very helpful, particularly if you work in an area of business that might be profoundly changed -- health care, energy, transportatoin.
posted by MattD at 8:05 AM on September 21, 2008

I think worst case what you'd most likely be looking at is inflation, so those 'bills' in the bank become nearly worthless. $100 for a loaf of bread anyone.

There's no harm in stocking-up on food staples that will last a long time. If not an economic crash, a natural disaster such as tornadoes, hurricanes, earthquakes, zombie attacks, etc.

Since you seem to be thinking along the lines of doomsday, if you live near a fresh water source, a camping water filter will help in that regard. Maybe some vitamin C supplements to ward-off scurvy. Rice, flour, yeast, butter, potatoes, apples, etc. stored properly. Bicycle to get around. Items and services to barter.

Move someplace that isn't run by a monkey.
posted by hungrysquirrels at 8:14 AM on September 21, 2008

Have you read the other threads on the subject posted very recently? Just read a few days of the archives, lots of panicked questioners.
posted by smackfu at 8:16 AM on September 21, 2008

* Save every dollar (or your country's currency) possible. Borrowing will be tight. Avoiding unnecessary purchases today will leave you with cash that you may need for tomorrow's necessities.

* Get accounts at multiple banks, and split your cash between them. By spreading your money across three or more banks, you'll still have cash while you wait for the FDIC to compensate you.

* If you pay with online banking, put together a list of account numbers, phone numbers and addresses for companies so that you can contact them if your bank fails.

* Buy a second or replacement, but inexpensive, vehicle with good gas mileage if your current vehicles are not fuel efficient.

* Pay off all variable rate loans that you have, if you can do so. Once those are gone, start on fixed rate loans. In other words, get out of debt.

* Insulate your home. Insulate your attic. Have the inside of your walls insulated. Insulate the walls of your cellar. Get insulated windows. Whatever you can afford to protect yourself against high energy costs.

* Be very careful to keep your job. The job market may become tough.

* If you have investments, then go with the companies that sell basic consumer needs. The more basic and the cheaper the need, the better. A company that sells detergent is better than a company that sells washers. A company that sells socks is better than one that sells designer handbags.
posted by netbros at 8:17 AM on September 21, 2008

I think half the responses to this question are confusing "economic downturn" with "zombie apocalypse".

Just keep a larger amount of money in savings than previously and you will be fine.
posted by Spurious at 8:31 AM on September 21, 2008 [1 favorite]

Honestly, the best advice is probably to be vigilant about fear mongers that try to convince you to put all your money in Krugerrands or to buy 1000 pounds of corn.
posted by Spurious at 8:35 AM on September 21, 2008

Oh, and one more thing.

If both you and your SO work, consider saving up enough money so that if one of you is fired, you can afford to send them to graduate school (or a different advanced degree) while the economy is down. That would minimize the "hit" to your lifetime income from that period of unemployment.
posted by Spurious at 8:42 AM on September 21, 2008

posted by norabarnacl3 at 8:52 AM on September 21, 2008

Spurious: I think half the responses to this question are confusing "economic downturn" with "zombie apocalypse".

Seriously. The best thing you can do, unless you work in an industry directly affected (e.g. banking, real estate), the best thing you can do is leverage yourself less and reduce your existing leveraging. Don't charge things you can't afford to pay off immediately. Spend within your means.

And put your head down and get back to work.

Spurious: Just keep a larger amount of money in savings than previously and you will be fine.

This is good advice, and should be applied to booms as well as busts.
posted by mkultra at 9:15 AM on September 21, 2008

I think you have to keep in mind what exactly it is that you're preparing for and plan accordingly without going overboard.

If an absolutely worst case scenario comes to pass in which the economy, (local) government, law enforcement, etc, completely fail and no semblance of order is restored for 5+ years, I don't plan on surviving. My "plan" for such a situation is that I will almost certainly die before the 5 years are over, whether of starvation, lack of water, violence, disease, or whatever, and I am not presently willing to make the sacrifices that would be necessary to make serious plans to try to survive such a scenario.

If I were to try to plan for the above, I would consider doing things like the following: Obtaining a multiple-year stockpile of food, moving to a less densely populated are, buying arable land, stockpiling crop seeds, learning and practicing farming techniques that don't rely on electricity or commercial fuels and fertilizers, building a stockpile of weapons, attempting to secure my residence against armed attack in ways that don't require the use of electricity, and so on. These types of preparations are too expensive and too disruptive to my current lifestyle for me to seriously consider undertaking them. I also don't have enough money or available credit to implement most of them even if I wanted to.

On the other hand, maybe I'll lose my job and not be able to find another one for some time. Or maybe supermarkets will run out of food for a day, a week, or a month at a time. People might break into others' houses to try to steal food in such a situation. There might be temporary shortages or unavailability of other important products and services: electrical power, natural gas, gasoline, telecommunication services, and so on. These types of events seem a lot more likely to me than the previous set, so it makes more sense to consider planning ways to survive them.

For instance, regarding the possibility of job loss, I could save more money so that I could continue to pay the rent longer. I could try to build a stronger relationship with my landlord so that he might be less quick to evict me once my savings ran out. These seem like reasonable steps.

It would probably be reasonable for me to spend a couple hundred dollars on non-perishable food in case of food shortages. I haven't really looked into it but I suspect that one person could survive for at least 3 months on $200 of non-perishable food staples. But, given what I'm planning for, it wouldn't be reasonable for me to cash out my savings account to try to build a 5 year food stockpile.

Likewise, it might* be sensible to buy a gun and a modest amount of ammunition and learn how to use it if you're worried that people might try to steal your food during a crisis. But it wouldn't make sense, given what I'm planning for, to load up on automatic rifles and enough ammo to kill everyone in my city. We're talking desperate burglars, not paramilitary gangs.

*[Yeah, I know, it might not make sense, either. Suicide rate, accidental shootings, etc, but that's not really my point.]

Regarding gasoline, it might make sense, if I could find a safe way to do it, to store 15 gallons of gasoline somewhere on my property so that I could fill up my tank if I decided things were bad enough that I wanted to leave my home and drive to one of the cities (within a couple hundred miles) where I have family. But I'm not about to start installing 50 gallon drums under my lawn, and so on.

One point about handling one's personal finances: It seems to make intuitive sense to many people that they should get out of debt if bad times are coming. While this is true in a general sense, it doesn't mean that you should empty your savings account to pay off your credit card. Your credit card company can reduce your credit limit at any time, and they probably will if things get really bad. You can't buy stuff on credit you no longer have access to, but you could buy stuff if you'd kept the money in your bank or under your mattress.

Even if you can't pay your credit cards, there are many things the card companies can't, by law, take from you even if they do sue you. So, if you're going to be out of a job for a while, it's a lot better to have $8,000 in credit card debt and $8,500 in the bank than it is to have no credit card debt and $500 in the bank. Someone else made this point in a previous metafilter thread but I wanted to repeat it because I think it's quite true and it seems non-obvious to many people.

Another thing I've heard mentioned here and elsewhere that makes a lot of sense is to get to know your neighbors. When you can't get what you need by paying for it, you're going to need help and there are many ways in which neighbors can assist each other. But everyone is going to be more likely to trust and help each other if they have a preexisting relationship than if they're strangers.
posted by Juffo-Wup at 10:41 AM on September 21, 2008 [2 favorites]

It also depends on what sort of "economic meltdown" you're planning for. Inflation? Spending your available cash to pre-pay food will look like the best bargain you ever got, while the rest of your savings become worthless (just like your debts). I'd guess most people think this is more likely than the other option. But maybe you want to prepare for a deflationary spiral where things start to cost less and businesses make fewer profits, so people lose their jobs or have their wages cut? In that case, you want to have cash and definitely don't want debt, as that $30 debt payment is now a bigger part of your income and a bigger amount of purchasing power.

About paying off credit cards, it's true that they can cut your credit line as Juffu-Wup says. But you might also consider that within some limits, they can generally change your interest rate at any time. So even if you don't pay the debt off now, to build up some cash stockpile, I'd have an equal amount of cash on hand. And under non-meltdown conditions, unless that cash is earning more interest than you're paying in interest, you're wasting your money.
posted by salvia at 11:10 AM on September 21, 2008

That last paragraph was badly written but hopefully you get what I mean.
posted by salvia at 11:10 AM on September 21, 2008

It's times like these that I like to read passages of the 1999 pamphlet "Y2K IS COMING!!!!!"

My family survived the Depression, not by stocking up on guns or getting to know their neighbors (who were typically in sadder shape anyway). They were willing to take any available job, they cut spending to the bone and they saved every extra dime.

I don't know that I'd be able to do any of that as drastically as they did, so that might be my failing. I'm just going to try to stay flexible with life choices, try to stay healthy, and squirrel away what I can. No one knows if that's going to be enough because everyone else's crystal ball is just as faulty as mine.
posted by sageleaf at 11:16 AM on September 21, 2008

To minimise the possibility of being fired (which is probably the single worst thing that can happen to you), consider moving to a job that is funded largely by the Federal government.
posted by TrashyRambo at 12:21 PM on September 21, 2008

My family survived the Depression, not by stocking up on guns or getting to know their neighbors (who were typically in sadder shape anyway). They were willing to take any available job, they cut spending to the bone and they saved every extra dime. I don't know that I'd be able to do any of that as drastically as they did, so that might be my failing.

I'd be able, because that's precisely what I've been doing for the past 6 years. As Paula Poundstone said this weekend on WAIT WAIT DON'T TELL ME, "I went broke years ago, so this is old news to me." I actually may come out of this all AHEAD of everyone.

The best things one can do, I've been repeatedly assured, are: make sure you have something saved in case you lose your job, and then just keep paying down debt, don't take on new debt, and find ways to cut your spending. Some of the ways to cut spending may translate into hardcore survivalism (I'm spending the afternoon canning tomatoes), but they're easy enough to do and take on as a habit even after the economy turns around (I'm not canning tomatoes because I'm afraid the world is going to end, I'm doing so because home-grown tomatoes taste so much better than what you can buy in the supermarket).
posted by EmpressCallipygos at 1:28 PM on September 21, 2008

Well, what are you worried about?

Inflation? Any cash you save should be converted into a different currency, eg the Swiss Franc, by way of relatively stable funds a la CurrencyShares FXF fund.

Deflation? Any cash you save should go into T-Bills or CDs.

Stagflation? Any cash you save should go into non-perishable goods in the event of food and gas costs rising beyond reach.

US Government defaulting on its debt? Any cash you save should be burned in the fireplace to keep warm.

Mainly, though, do these things: Do very well at your job so you're indispensable, save up as much money as you can, and prepare for a variety of possible outcomes. Anyone who says they know exactly where our economy is heading is deluding themselves, because if anything this past week has proven that so-called fiscal conservatives really aren't.
posted by mark242 at 1:56 PM on September 21, 2008 [1 favorite]

The first, and absolutely most important, thing you should do is reduce your debt. Specifically, credit card debt. Some cards run with interest rates up and around 29~30%!!!

After that, ensure you stay employed if possible.

If you own a home, the chances are that you have a mortgage. Focus on maintaining your repayments. Chances are that any downturn will last a year or two at the most, and you really don't want to lose your house. Plan/assume that your repayments are going to increase and try to plan a budget that will allow you to continue making your mortgage payments.

If you have lots of share-market investments, consider diversifying; stocks in resource based companies are a good bet, as the Chinese and Indian demand is only going to increase.

Finally, don't get too stressed. You're more likely to give yourself a stress-related heart attack than end up destitute.
posted by Mephisto at 4:44 PM on September 21, 2008

The first, and absolutely most important, thing you should do is reduce your debt.

The first thing you should do is make sure you have several months of expenses saved up. Then start paying off the debt.
posted by Jahaza at 5:20 PM on September 21, 2008

That assumes, jahaza, that you are worried you might lose your job.
posted by Mephisto at 11:50 PM on September 22, 2008

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