Mid-FEB 2010, Implement a Stress Test!

Much has been said about ‘Stress Tests’ in the financial industry and I’m here to tell you the same practice is needed in our businesses and in personal planning. 

A  Stress Test is easy to perform and can be a great way to frighten yourself into action.

The test is simply a way of seeing how you would respond to a certain set of eventualities. 

When I was in the Marine Corps we practiced war games so we’d be ready in case we actually had to defend our nation, thank God we did because, #@$% happens.

We’d go through exercises to prepare and we’d evaluate our preparedness.

Are you prepared for 2010?

This Stress Tests may help you plan for the next 10 months and beyond.

Scenario#1. What would happen if your income dipped 40% in the next 11 months?

Are you prepared? 

Most folks are not and if you are not don’t worry. Simply begin preparing now. You might say, ‘Well that will never happen’ but it happens every day. People lose their jobs, have health issues, cars break down, kids go off to college, roofs need replacing, etc..These are, for most people,  treated as emergencies rather than expected eventualities so having an emergency fund and a sinking fund in place is essential to managing your finances, business and personal.

Are you prepared?

What is your plan?

People often talk in terms of ‘emergency’ or ‘crisis’ when, in fact, most so-called emergencies are very predictable.  We simply don’t prepare for the expected we ‘wish’ bad things away but the “unexpected” is only unexpected if you’ve spend you time ignoring the inevitable rather than preparing for the eventuality.

#@$% happens, as they say. So prepared for #@#$ to happen, because it will.

This is life and life happens, prepared or not.

Step 1. Determine how much you need to pay your bills-your monthly expenses.

Step 2. Save 3 to 6 months in an Emergency fund and put it in a money market account–NOTE, this is not an investment so don’t put it in the stock market and it is to be used for emergencies ONLY.

Step 3. Set up a Sinking Fund. Corporations have them. They are also known as contingency funds and are simply a pool of money set aside regularly to cover known eventual needs like car replacement, phone replacement, computer replacement, etc..  We all know we’ll have to replace a roof, so save for it, monthly. We all know we have to replace the car, so save for it monthly. We all know that are kids are going to need clothes and Christmas gifts, so save for it,  monthly

Step 4. When the ‘eventality’ comes and they will, resources will be available to meet them.

Then, so-called, Emergencies will sting less, trust me.

Read more here…