How to Future-Proof your Finances

All of us go through hard times in our lives, either due to our country’s economical downturns or due to personal issues. Nobody is an exception to them. All we can do is incorporate few fundamental changes in our lives to minimize the hardships.

Let us see where we are with earning and managing our money and how we can future-proof our finances.

Most important thing: Flexibility

The most important thing needed is flexibility – openness to the new point of view and maintaining the right attitude about money. This openness is the most important criterion for surviving and thriving in hard times.

Gas Lamplighters and Switchboard Operator jobs were used to employ thousands of people. The arrival of various technologies made these jobs disappeared. Similarly, various megatrends want us to change our ways of earning, spending, and saving our income. We can ignore or resist or try to postpone any changes in our old ways for some time. But the changes are inevitable.

Let us remember that there is no magic wand. It requires us to go back to simple, common values that are time-tested by our forefathers and pioneers.

1. Earning our money: Multiple income streams

Most of us have experienced firsthand or from someone we know about losing a job upon which the whole family depended on. The entire lifestyle of a family gets hit when the job loss occurs. We are familiar with the statement – Don’t put all your eggs in one basket. But that is exactly what the majority of us do when it comes to earning our income.

Most of us have followed the following conventional career path so far (of course, we would have exceptions from these established paths),

For younger folks, it has been “get a college degree, find a job in a company, and work there until retirement”.
For middle-career folks (who are already working in a job), it is “somehow hold on to the job until retirement or try to change job to a more stable company or in a more stable industry or with more salary”.
About 10% of working people choose to go for the self-employment option by starting a business selling products or services.

The majority of us rely on a single income (or two for married couples). With this single income, we try our best to manage our daily living expenses, emergency fund, kids education planning, our retirement planning, etc.

The 9-to-5 job world has changed quite a bit in the last 20 years or so. Our parents or grandparents might have gotten a job when they were in their 20s and retired in the same job or profession. Those days are gone. There is no such thing as ‘Permanent Jobs’ anymore. Even if we get the so-called ‘full-time’ or ‘permanent jobs, they are not truly permanent. In 99% of the jobs, it is just 2 weeks (or less) away from unemployment. With the financialization of the economy/companies, everything is very short-term focused nowadays. Most of the employees are just numbers in the books of the employers. It is very sad.

Let us do a reality check,

Even with the Covid-19 pandemic running dangerously, we are at low unemployment levels. What will happen if another black swan event hits our economy?
What will happen if our employer closes doors or our job gets eliminated?
Will our jobs be still there in 3 or 5 years?

All of us should be prepared for income loss. If we look at the last Great Depression of the 1930s, most of the people survived with multiple jobs or ventures. Though the current economic scenario is not similar to the 1930s, it is a valuable lesson that we all can learn. Even if we are working in a good-paying 9-to-5 job, it is something worth considering.

Hard times force us to think and work independently as a one-person business. Every individual needs to take small steps to develop multiple skill sets to provide services or products and generate multiple streams of income.

While looking for new income streams, let us consider different options that worked well during hard times,

Passive Income:

The traditional investment philosophy assumes that we rely on regular, sustainable income from a job or business throughout our working life(till our mid-60s). But to survive and thrive in hard times, we have to develop our own ‘unemployment insurance’ for unforeseen circumstances. While we are engaged in bringing new income, we need to generate passive incomes also by making our savings work for us. Many traditional (stock dividends, rental income) and modern (selling informational products, affiliate marketing, YouTube channel) streams are available. We have to choose what works best for our situation.

Independent Work:

During hard times like the Great Depression of the 1930s or the Covid-19 Pandemic of 2020, most of the companies would freeze or postpone the hiring process for permanent positions and wait for things to come up again. But even during those times, to avoid long-term commitments, they would be ready to engage temporary workers. They are called with various names – Contract Worker, Independent Contractor, Independent Consultant, Freelancer, Contingent Worker, Self-Employed, Free Agents, Gig Worker, 1099 Worker, etc.

Unlike a few decades back when our school/college education determined everything, the recent development of the digital platforms presents a flexible arrangement. It is allowing us to start something on the side, practice, and grow it to be a full-time venture (if we wanted).

Essential Trades:

In good times, people go for convenience and luxury. In hard times, people go for essential products and services. There will always be a demand for products and services that people cannot live without. For example, anything to do with food, healthcare, repair services. So even if we are working in modern professions (like IT, Marketing, Digital Media, etc), let us get experienced in trades related to essential products or services.

Local Economy:

We are living in a globalized environment. For example, most of our food comes from 3000 miles away and we buy it with money earned by servicing a customer living far away. It works perfectly till it does not. During hard times, communication and trust break down quickly. Face-to-face relationships work better in that scenario. So we must develop services or products useful for a local network of people, within our towns or counties.

2. Managing our money: Simple living

Over the last 100 years, we have changed our lifestyle from the phrase from our Declaration of Independence,

Life, Liberty and the Pursuit of Happiness TO Life, Liberty, and the Pursuit of Stuff

More choices, cheaper credits, and easier access have developed a consumer culture that wants us to spend, spend and spend.

When we compare ourselves with our grandfather’s generation, we have larger houses, innumerable appliances and gadgets, and a thousand newer ways to spend our money. The consumer culture is accepted as our way of life. Every area of life – family, children, education, health care, recreation, and religion is infected with this consumer culture. Many ‘wants’ became ‘needs’. In addition to spending our earned income, we borrow and spend also. US household debt is at its highest point and continues to grow.

Hard times in the economy or individual life would always demand that we change to leading a simple, frugal life. Simple living means different things to different people. For example, it may mean old-fashioned living, minimalism, frugal living, slow living, or intentional living.

In the context of Breadnomics, we will take simple living as being careful with our money, focus on what truly matters in our lives.

Simple living is not a new phenomenon. Henry David Thoreau from Concord, MA advocated in the 1800s. It has been proven over and over that material accumulation does not result in an increased level of happiness. But we continued filling our lives with material possessions.

Over the last 20 years, due to the arrival of various social media platforms, antipathy towards our consumer culture and celebration of simpler lifestyles have been growing. It is for our good that we adapt to it. We need to live a simple, frugal life with our hard-earned income and save the remaining money.

The following steps could help us lead a simple, frugal living,

Reduce spending money by being self-reliant and resourceful
When money has to be spent, spend it frugally on essentials only
Lead a recession-proof lifestyle
Find content and happiness in non-material things

We will see how we can implement these steps in new articles.

Final Thoughts:

Let us remember that these changes will not happen overnight. But we have to take small steps towards the following key principles,

Multiple streams of income
Simple living

We will see many topics related to these principles in the coming articles.

Thank you for reading. Please share your thoughts below.