{"id":105952,"date":"2011-10-05T05:00:27","date_gmt":"2011-10-05T12:00:27","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/?p=105952"},"modified":"2019-08-25T12:56:37","modified_gmt":"2019-08-25T19:56:37","slug":"turn-paranoia-into-plan-b-because-things-might-get-worse","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/turn-paranoia-into-plan-b-because-things-might-get-worse\/","title":{"rendered":"Turn Paranoia Into Plan B (Because Things Might Get Worse)"},"content":{"rendered":"

I have a confession: I am an \u201cawfulizer.\u201d I’m always afraid that something awful is around the corner, especially when it comes to my personal finances and the overall economy. Folks like psychologist Martin Seligman (author of Learned Optimism<\/em><\/a>) would point out that my physical and mental health suffers from all my dooming and glooming, and he’s probably right. Nevertheless, as Seligman points out in his book, pessimists are more accurate when it comes to assessing reality. In other words, all you optimists are just deluded!<\/p>\n

Plan B for peace of mind<\/strong><\/em>
\nAndrew Grove, who fled communist-run Hungary at the age of 20 and co-founded semiconductor company Intel, had a guiding motto: Only the paranoid survive.<\/strong> (He also published a book<\/a> of the same name.) No, that doesn’t mean you have to turn into Howard Hughes, who would demand that people remove dust and stains he saw on their clothes, but there’s value in having a defensive nature. People used to tell me that I was just being overly pessimistic. But after the last 11 years, and the accompanying recessions, layoffs, and market crashes, I no longer seem so irrational.<\/p>\n

From both a financial and psychological point of view, I’ve learned to live with my \u201cawfulizing\u201d by having a plan for what would happen if my family’s situation changed significantly \u2014 what expenses we’d cut, which relatives we’d move in with if we lost the house, even where we’d rendezvous in case a major catastrophe prevents us from getting to our home. (After all, I do live in the Washington, D.C. metropolitan area, and have a picture I took from the balcony of Fool HQ of smoke rising from the Pentagon on Sept. 11.) Fortunately, I haven’t had to put my Plan B into effect, but knowing it’s there has provided plenty of peace of mind.<\/p>\n

The past several weeks have inspired me to revamp my Plan B. Some of the reasons are personal (i.e., the possibility of taking in three kids whose parents are unable to care for them) and some are global, namely, the economy stinks and could get worse. Research firm ECRI, known for its well-regarded index of leading indicators, issued a report<\/a> on Sept. 30 that claims the U.S. economy has already tipped into a recession. Furthermore, the ECRI claims that shorter recovery periods and more frequent recessions will be the norm. They conclude the report with this: \u201cIf you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.\u201d<\/p>\n

You don’t have to be prone to paranoia to find that a bit scary. If it makes you at all worried, then perhaps it’s time to turn the angst into action by creating your own backup plan.<\/p>\n

Income, interrupted<\/strong><\/em>
\nYou already have a Plan A \u2014 you’re living it. Whether it’s an actual written document is another matter. But your Plan A starts with your current income, which determines how much you can spend, how much you can save, and how long it will take to achieve your financial goals. Plan B is what you do in case there’s a disruption to your current sources of income, be it your job (if you’re still working) or your portfolio (if you’re retired). The actions in your Plan B have three components:<\/p>\n

    \n
  1. Actions you can take now to prevent an emergency or increase the chances that other resources will be available should you need them.<\/li>\n
  2. Actions you will take in case the income interruption occurs \u2014 essentially, a thought-out strategy that you can implement immediately.<\/li>\n
  3. Considerations of how all these actions could affect your long-term financial goals.<\/li>\n<\/ol>\n

    Here are some candidates for the components of your Plan B:<\/p>\n