Hey, I’m back and it’s time to get real.
How many of you have been in a fire drill before? Come on, we’ve all been in school and chit-chatted our way through the teacher having us walk single file out of the building, following instructions that we’d forget about two minutes after we were back in our desks. And I did the same thing during fire drills at the office as an adult – because what are the odds of an actual fire happening, right? And even if it did, what are the odds that it would be big enough to cause any real damage?
But what if you knew a fire was going to break out? What if you knew a sudden blaze was going to start that could hurt you and the people you care about, but you just didn’t know when? Then would you have paid attention? Then would you have made a plan? I would. And I would make sure every one else around me did too, because I don’t want to get trampled on my way out the door. I bet you would too.
Fires happen every day. We run drills because they help us be prepared for the real thing. While, in our case, FIRE is something that we’re working towards and not running away from, it is not the end all be all. There are other reasons for becoming financially independent than to stop working, like life’s financial fires that happen to come your way.
Let’s get a little bit more morbid for a second. What if you were to die in a car accident tomorrow? Would your family have to come up with the cash to pay for your funeral expenses? Would they be able to? Would your spouse be able to keep the household running without your income? What if you didn’t die, but ended up in the hospital for an extended period of time? Could you meet your health insurance deductible easily? What if you didn’t get hurt, but your car is totaled and you need it to get to work? Could you afford to get another one quickly? What if the car was just damaged enough so that you couldn’t drive it? Could you come up with $1000 for the repairs? $500? And these financial fires don’t have to be car related (that’s just what’s on my mind lately); illness, legal trouble, job loss, and divorce are all financial fires.
These things happen to people EVERY. SINGLE. DAY. You are not special, you are not invincible. Shit happens. And it sucks. And it’s not fair. But it’s better to be prepared for it rather than curse the world for your lack of planning. I don’t mean to victim blame here; trust me, I’ve been there and I know it is not a good feeling. Becoming financially independent is a journey and we are all at different steps in that journey. It is up to you to make a plan and reevaluate your goals every now and then so that you can be prepared for the next financial fire.
Here’s my financial fire preparedness plan to get you started:
- Eliminate Hazards: Just like overloading your outlets, overloading your budget can cause a financial fire. Get your budget under control. Stop spending more than you earn by getting rid of recurring expenses that drain your bank account and work hard to lower your necessary expenditures.
- Fire Prevention: Treat your emergency fund like a fire extinguisher. Never use it unless it is a true emergency and once it is used, replace it as quickly as possible. Use a budgeting app, like Mint or Personal Capital, to act as smoke alarms. Set alerts to let you know when you’re getting close to your going over budget.
- Develop Escape Plan: Make sure you adequately insured – homeowners, auto, health, etc. Your emergency fund is your first line of defense to pay any deductibles you might be responsible for. You’ll also need an escape route – know which accounts you can access and make sure your investments are diversified. Try keeping your funds in retirement accounts, which are like fire proof safes, not only are they tax efficient, but they may also protected from bankruptcy and litigation.
- During a Fire: Leave personal belongings behind – saving your stuff is not important. If you have to sell something that you love or forego the newest gadget in order to get out of a financial fire, do it. You’ll be better off for it and likely won’t remember what you had to give up in the first place. And once you’re out don’t go back for any reason – try to avoid getting into the same sticky situations again.
- Don’t Smoke: Ok, this is not really a financial tip (even though cigarettes are expensive), but it’s bad for your health and could start a real fire. Just say no.