There is little we can do to prepare against a full-scale economic collapse. When I say a full-scale collapse, I mean a complete collapse of the American financial industry – banks, investment firms, the FDIC, Wall Street, etc. Looking back at the Great Depression, there were few who survived the financial collapse unscathed.
However, there are a few steps we can take to mitigate the risk of being completely wiped out in a severe economic downturn. And survival preparedness is all about mitigating risk, even when it comes to finances.
Step 1: Build a solid, diverse emergency fund. By diverse, I mean in a variety of investment types and locations, but nothing too fancy. This is an area where you can outsmart yourself a bit by looking for high-yielding investments, or the next hot stock sector.
Instead, focus on high-interest cash investments such as money market accounts, CDs and savings products offered at your local credit union. Apart from those investments, consider keeping a month’s worth of basic expenses in cash at home. In the wake of large natural disasters many local stores have no power and the only way they can conduct business is with cash.
Step 2: Get out of debt, and stay there. There is never a good time to owe a ton of money to someone, but when we are on shaky ground it makes being deep in debt an even bigger risk. I recommend paying off all non-secured debt (credit cards, personal loans, student loans) as quickly as possible.
Get your emergency funds in place and then begin chopping away at other debts. Eventually, you can turn your attention to paying off your mortgage early, a move that puts you much closer to being financially independent.
Step 3: Diversify, diversify, diversify. Can’t stress it enough. Invest money in a variety of investment vehicles, in a variety of sectors, and in a variety of domestic and international markets. If things go south here, chances are they will go south everywhere, but perhaps not as bad. Foreign markets make for a good hedge against a US economic collapse.
Step 4: Invest in precious metals. I am not completely convinced investments in gold and other metals will get you through. However, if we experience a complete economic collapse and our currency becomes worthless, there is a chance, in the short term, that gold could become a hot commodity used for bartering. And speaking of bartering, many believe we would revert all the way back to a barter system trading everyday goods and services.
Step 5: Create a will and purchase solid insurance policies. This is especially true if you have dependents. Until you can save enough money to be considered “self insured,” it makes sense to purchase enough life insurance to replace your income for many years to come. And don’t forget about disability insurance. Chances are much higher for young, healthy people to become disabled before they die.