If the US Government does not raise the federal debt ceiling limit by the August 2nd deadline, there will be serious repercussions felt throughout the American economy and around the world. I wrote about some of the results that you could expect by failing to increase the debt ceiling yesterday. Many people are fearful of the results that could take place if the debt ceiling is not raised. But, there are several things that you can do in order to ensure that your personal finances are in order should the United States government default on its debts.
Three Ways To Protect Your Personal Finances From A Debt Ceiling Default
Stick To Your Budget
One of the best things that you can do if the United States government defaults on its debts because of failing to raise the debt ceiling limit is to stick to your monthly budget. You should have a written monthly budget already, and a time of crisis where the world financial markets may see disturbances is not a time to deviate from your budget. Dave Ramsey is famous for often saying that you need to have a plan for every single dollar of income that you earn. Every dollar needs to have a name whether it is allocated for rent, electric, credit card debt, or something else. You should know where every dollar is going before the month even begins. Now is the time to stick to your budget.
One of the worst things that you can do is panic during a financial crisis. We all saw it during the 2008 recession when housing prices and the stock market tanked. Investors ran for the hills and withdrew their investments in record numbers even from their retirement accounts. There was a huge flight by investors from equities to bonds and cash during the last recession, and there is a huge risk in doing this. Selling your investments in a panic for safer options will force you into selling at a low point in the market which is contrary to the number one rule of the financial markets, “Buy Low, Sell High”. The best thing that you can do if the US defaults on its debt is to continue your current investing plan. You will be able to buy new stocks and mutual fund shares at bargain discount prices. I love when the market tanks because everything is on sale!
Stockpile Your Cash
In addition to sticking to your monthly written budget, it may be a good idea to stockpile a little bit of cash in the event of a US default. Now, I’m not saying that you need to run out and buy gold or keep your money buried under the mattress in your house. But, there has never been a better time to have an emergency fund in place. Most professional financial planners recommend saving three to six months of living expenses in an emergency fund.
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There is a lot of fear in the financial markets with the deadline for a resolution on the debt ceiling issue looming. It is very reminiscent of the recession of 2008, and there is a fear that panic can lead to rash decisions by people. The best advice is to shore up your finances by saving your money, staying within your monthly budget, and continuing to invest with your established investing plan.