Worried About a Money Disaster? Here's Your Plan B

Plan B with your moneyBy Robert Brokamp

Are you an "awfulizer"? Do you fear that something awful is around the corner, especially when it comes to your finances?

Maybe that's not such a bad thing after all, given the recessions, layoffs, and market crashes of recent years. In fact, you can turn awfulizing to your advantage by making a plan for what would happen if your family's situation changed significantly.

Call it the pessimist's Plan B -- expenses you'd cut, which relatives you'd move in with, even where you'd rendezvous in case a catastrophe prevents you from getting home. Even if you never have to put your Plan B into effect, knowing it's there will provide you with peace of mind.

Getting from Plan A to Plan B

You already have a Plan A -- you're living it. Plan A starts with your 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 covers what you'll do in case there's a disruption to that income, whether from your job (if you're still working) or your portfolio (if you're retired).

Here are five strategies to consider for your Plan B -- actions to take now and to know you can take in the future:

1. Invest in your human capital. No matter what kind of job you have, think of yourself as self-employed. As fund manager John Hussman says, even people who get steady paychecks are "entrepreneurs in the sense that they are in the business of selling labor services." Solidify your good standing with your company and customers, have in mind a list of other employers or jobs you would investigate, and stay active in your network.

2. Prioritize your expenses. In other words, live below your means. Spending less today means needing less in an emergency -- and being able to accept solutions that result in a lower income. Look at any household budget, and you'll see plenty of categories that can be trimmed: travel, dining out, gym memberships, and charitable contributions. Many items we think of as necessities are really luxuries, such as cable TV, high-priced cell plans, high-speed Internet, and new clothes.

3. Put your home to work. For many homeowners, the mortgage is their largest expense, and the house is their biggest asset. To lower that expense or put equity to work, you might downsize, move to a location with a lower cost of living, or take out a reverse mortgage if you're 62 or older.

4. Sell your stuff. You own more than a portfolio and a house: You also own everything in your house, and you can sell much of it in a pinch. My family made more than $2,000 selling things we no longer needed before moving to a new home. We could have parted with even more if we had to.

5. Know where your cash will come from. If you have an emergency fund, congratulations! But if you depleted that, what's next? In a recent survey, 61% of people said they'd tap their 401(k). But that leads to taxes and penalties if you're not 59-and-a-half, and it can compromise your retirement. Everyone's case is different, but here's a general order of where to turn for cash:

  • Emergency fund
  • Investments in nonretirement accounts
  • Property or possessions you can sell
  • Contributions to a Roth IRA, but not earnings
  • Home equity loan, only if you know your situation is temporary and you have no doubts about paying it off
  • Credit cards
  • 401(k) loan, only if you will continue to have the same employer and you have no doubts about paying it off
  • Retirement accounts

Your financial future depends on returns, assets, timing, and other variables you can't control. Knowing now how you'll react if a sudden change throws your plan off course is smart on several fronts. By having a Plan B, you'll make better decisions, and you'll put yourself in the best position to get back on track without awfulizing holding you back.

Robert Brokamp is a Certified Financial Planner and lead advisor of The Motley Fool Rule Your Retirement service.

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Good article. Reverse mortgage is a nice financial instrument for the senior citizens in the country who do not have adequate retirement fund at their disposal and whose age is 62 or more .


June 28 2013 at 3:54 PM Report abuse rate up rate down Reply

"My Father makes a GREAT income, but we struggle. I can not even begin to imagine how the poor is getting along. It is so sad what people are going threw.


March 30 2013 at 8:05 AM Report abuse rate up rate down Reply

The low skilled jobs will never again pay what they did 10 years ago and the defined pension programs are all but gone. Moving forward the labor force must be better trained, properly educated, and taught to speak and understand english. There will always be skilled jobs in construction, product maintenance and related fields but the high paying low skilled jobs in manufacturing have been replaced by robots but new robots are always being replaced or reprogrammed and always require maintanence. Opportunities are always there but you must be willing to change.

March 14 2012 at 7:04 AM Report abuse rate up rate down Reply

My mom told me a long time ago there would no longer be mid-class citizens. My husband does a great job at an income, but we struggle. We should be comfortable. We have cut back in everyway possiable, and no I do not have a problem with hand me down clothing or making sure the electric and the heat is used respectfully. We use our gas to drive into town carefully and we have cut way back on eat outs. I can not imagine what the poor goes threw, but we all know the rich has got it good. It is all so sad and breaks my heart.

March 01 2012 at 2:17 PM Report abuse +2 rate up rate down Reply


March 01 2012 at 1:41 PM Report abuse rate up rate down Reply

Obama calls it redistribution of wealth. This is all a deliberately planned and executed process to destroy the individual liberties, and freedoms of the American middle class to bring them down to the levels of the rest of the world. If I go down, I'll go down fighting. I was born a free American and I'm prepared to die a free American. To hell with Obama, his commie cronies, and the rest of the world.

March 01 2012 at 1:14 PM Report abuse +4 rate up rate down Reply
2 replies to cpenrod's comment

My mom told me while growing up that there would be no more mid-class...either rich or poor. My husband makes a GREAT income, but we struggle. I can not even begin to imagine how the poor is getting along. It is so sad what people are going threw.

March 01 2012 at 1:54 PM Report abuse rate up rate down Reply

My mom told me when I was a kid there would be no mid-class. She told me either poor or rich. My husband makes a great income and we just get by. I can not imaging what the poor is going threw, but we know the rich has it good. It's all just a big shame :o(

March 01 2012 at 2:08 PM Report abuse rate up rate down Reply

DailyFinance knows another crash is coming? How?

March 01 2012 at 1:07 PM Report abuse -1 rate up rate down Reply

You can't prepare for the meltdown that's coming.Like the last recession/depression you can do everything right,live within your mean's,save,don't use credit & still get caught up in the wash of everyone who didn't.When the big crash comes there won't even be a 1% left to tell the tale...............maybe that's a good thing.

March 01 2012 at 11:50 AM Report abuse +2 rate up rate down Reply

After the last financial crash a man called his broker and complained that he needed to do something to protect what he had in case the market crashed a second time. His broker pondered a moment then gave him the advice....
but food and ammunition!

March 01 2012 at 11:22 AM Report abuse +2 rate up rate down Reply

Doesn't the government have to take everything we own away from us first in order to give it to us later? Politicians and the electoral process are just a confusing smokescreen to cover for those who are really in power while they slowly take away our freedoms and property thru laws and taxation.

March 01 2012 at 11:13 AM Report abuse +3 rate up rate down Reply