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If the United States were to suffer an economic collapse, would you and your family be prepared? Many Americans ask themselves this every day, as most don't understand what an economic collapse is or how it'll affect them. Therefore, they have no idea how to prepare for one.
While an economic collapse in the U.S. is unlikely, it's a good idea to make some basic preparations just in case. While there are degrees of severity of a breakdown in the national economy, some relatively simple things exist that you can do to prepare for even the worst of scenarios. Unfortunately, prepping for an economic or societal collapse has earned a bit of a stigma in recent years.
What's an economic collapse?
A collapse of the U.S. economy could manifest in many different forms, and be caused by a variety of events. Generally, we would see a significant downturn that could last for quite some time. Poverty would be rampant, which could lead to significant social unrest. This downturn could range anywhere from a big, deep recession to a complete collapse, which would end daily life as we know it. As stated, this is highly unlikely; however, you should make preparations anyway.
What would cause the economy to collapse?
Several scenarios could cause a significant downturn in the U.S. or even the world economy. Understanding the impacts of some of these might help you better prepare. Three examples are as follows.
- A cyber attack that paralyzes or severely damages the Internet could have a devastating effect on commerce, banking, transportation, and anything that relies on the Web to run.
- A rapid devaluation of the U.S. dollar could drive the cost of goods sky high along with interest rates. Hyperinflation is a significant threat to the health of the U.S economy.
- A terrorist attack of large magnitude, say a rogue country setting off an EMP (electromagnetic pulse) that cripples the power grid and creates significant chaos. Without power, things could deteriorate very rapidly. Access to the basics of clean water and food for many people could be severely impacted.
How should I prepare?
If a significant economic downturn happens here, it could happen quickly, especially if it's a true collapse of the economy. So, you should prepare now because you may not have a lot of time once it starts. Consider what happened when the economy teetered on the edge of collapse in 2008.
In September of that year, the economy nearly collapsed as the stock market plunged and investors spiraled into a full-blown panic, withdrawing billions from money market accounts, the place where businesses store their operating capital. Had this panic continued for several more days, the U.S. economy could have ground to a complete halt, ceasing all commerce. Food shortages would have happened very quickly along with shortages of other essential items.
However, our financial leaders were able to stave off a collapse by quickly implementing a bailout plan, which pumped enough cash into the economy to keep it afloat. While the Great Recession that ensued in 2008 was bad, it could have been catastrophic.
The Great Depression was precipitated by the stock market crash that occurred on Thursday, October 24, 1929. By the following Tuesday, the market had lost 25% of its value. Many Americans lost everything they had in those few short days. The stock market took decades to recover.
You should prepare on a number of fronts by stocking up on essentials, much as Americans who live in hurricane-prone areas do. However, you should also prepare financially. Let's examine a few areas you should focus on and some of the specifics of getting prepared.
In order to be prepared financially, you must first be aware of what's happening in the financial world. Because an economic collapse can happen very quickly, it's important that you understand the basics of the U.S. economy so you can recognize the signs of an impending downturn. Monitor the stock market, because a crash is usually one of the first signs that the economy is faltering. Also, make sure you have some liquidity in your assets, meaning you can convert them to cash quickly.
Start and maintain an emergency fund
One of the first things that'll happen in a severe economic down or collapse is massive job loss. If you don't have the financial ability to weather being unemployed for a period, you'll be at risk of losing everything. You should work toward accumulating enough cash to cover your expenses for six months. Create a separate account for your emergency funds by opening an interest-bearing checking or savings account, a certificate of deposit, or a money market account. As a hedge against a complete collapse, consider stockpiling items that could be used for bartering such as alcohol, tobacco, coffee, and gold and silver.
It's also a good idea to keep some cash on hand in a safe place. Access to funds in a bank or with an investment house could be difficult to access or become hard to liquidate. Keep the money on hand in a precious metal if you can. This will protect you from currency devaluation in an economic collapse.
Create multiple streams of income
Find ways to generate excess income such as starting a side business or developing other ways to earn income. If an economic downturn causes you to lose your job, this could help close the gap on meeting your expenses and surviving economically, as finding another good-paying job during a recession or a depression could prove to be very difficult.
A side business can mean anything from starting an online business to selling a homemade item at your local flea market or farmer's market.
Also, work to formulate some moneymaking methods by anticipating the needs and wants of others during a financial crisis or collapse. Think in terms of the absence of critical items and services, such as clean water, food, medical supplies, and clothing.
Reduce or eliminate your debt
Having less to pay for each month will help you significantly if you're laid off during a deep recession or economic collapse. In addition, if interest rates go way up during a significant economic downturn, you'll reduce your exposure if you aren't carrying a lot of credit card or other consumer debt.
To help pay off your debt, you should create a budget that funnels as much money to your debt as possible. You can do this by reducing your overhead expenses and/or increasing your income. Go through all your monthly bills and look to reduce them down as much as possible. Cutting down the cable, telephone, wireless, and subscription services all offer ways to save money. Starting a side business or taking on a second job can help create additional cash flow that you can put toward paying down your debt.
It's also important to develop a plan to pay off your debt. There are several ways to consider; however, they all involve dedication and persistence. You can start with your lowest balance first and work to pay that off, and then move to your next highest, and so on. This helps you build momentum in paying off your debt and creates a snowball effect, as each month the amount of cash flow available to put toward paying down your debts increases.
Another way is to use the ladder method, which involves paying off your debt in order of interest rate, starting with the highest rate first. This will save you the most amount of money in the end.
Whatever method you choose, it'll be tough; you'll need to stay dedicated to the idea of becoming debt free.
Store essential items
Being prepared for an economic collapse means having on hand essential items you'll need to get you through until things begin to normalize. This is similar to preparing for a hurricane but on a larger scale.
Store emergency water
It's possible in an emergency such as an economic collapse that you may be without water and electricity for an extended time. Clean water is the most important thing you'll need for survival. For your convenience, store as much water as you can, but also be prepared to sanitize water in case the outage lasts for a long time. There are several options for this, from chemicals to filters. Be sure to research your options, decide on a method, and put it with your supplies.
You'll need to store or produce a minimum of a gallon of water per day, per person. In addition, you'll need to include pets and livestock in your equation.
Stockpile emergency food
You'll need to accumulate stores of nutritious, non-perishable food that has a long shelf life. Items such as rice, beans, canned foods, beef jerky, dried foods, and nuts are all good options. Numerous resources online can help you decide which foods to store. Essentials such as salt, sugar, coffee, honey, and powdered milk are usually included. Try to stay away from processed foods and snack items, which usually have a short shelf life.
Think about the nutritional needs of your family, especially those that require a specific diet such as babies or diabetics. Also, don't forget to store food for your pets as well.
Grow a garden
Cultivating a garden will provide you with fresh, nutritious food in the event of extended food shortages. It'll also help you save money on food costs if the economy is experiencing hyperinflation. A garden also provides you with the opportunity to preserve nutritious food through canning and drying. Most items you grow in the garden can be canned and stored for years.
Many people who don't have a lot of land or who live in apartments utilize container, vertical, or rooftop gardening and can grow quite a bit of food in a very small space. Most vegetables are easy to grow, especially lettuce, tomatoes, berries, broccoli, and melons.
Build a file for emergencies
This kit would include a variety of items you might need for any type of emergency but might be especially important in the event of a financial collapse. These items might include:
- A list of contact information for family, friends, and essential services
- Copies of important documents such as birth certificates and passports
- Baby essentials such as diapers, wipes, bottles, and ointments
- Batteries, matches, flashlights, emergency radios, tools, and maps
- Chemicals for disinfecting such as bleach
- Essential medications that your family requires
- First aid supplies and a book on administering first aid
- Over-the-counter medicines such as painkillers, antibiotic ointments, cold medicines, anti-diarrhea medicines, and laxatives
Be sure to keep your supplies in an airtight, watertight container that's portable and easily accessible.
How likely is an economic collapse?
The U.S. economy is remarkably resilient, and it's especially stable right now. With our Federal Reserve keeping an ever-vigilant eye on the economic fundamentals of our economy, they'll likely see any warning signs and be able to institute monetary policies to ward off any serious threat.
You can also keep up on key economic factors that help in predicting the ups and downs of the economy. Watching the stock market can give you a good insight into the health and direction of the economy. Also, monitoring key economic influences such as fuel prices, GDP growth, bond markets, inflation, and commodity prices can help you better understand where the economy is headed.
Most important is being prepared to be as self-sufficient as possible. While the idea of an economic collapse can be overwhelming, being prepared and knowing you have taken the necessary steps to provide for and protect your family will give you peace of mind and help you sleep better at night.