Gather Little by Little

Several years ago, our government instituted “terrorism alert” levels. The various levels roughly corresponded to various colors and were intended to indicate to summarize the immediate danger of a terrorist attack – sort of a civilian DefCon warning system. The color advisory system was limited and although intended to make things clear to everyone, it really was not useful to the average person. The color system worked better as a means of telling public servants – security, police officers, intelligence gatherers, civil authorities – to what extent they should be on alert and what assets to have at the ready. All-in-all, the color advisory system was not really a failure and not really a success either.

Here is a Financial Threat Advisory System based loosely on the the terror alert system. What is your risk level?

Red: severe risk

This is the highest level of financial alert. This person is almost homeless and needs to exhaust all possible means of help and/or employment possible. Bankruptcy might be the only option.

• Lots of debt. Mortgage, HELOC, car payment, college loans, cannot make minimum credit card payment.
• No retirement
• No emergency fund
• Government assistance for almost every need
• Probably unemployed
• Expenses far out-weigh income. This person might not even open mail or answer the phone anymore (if it is still on).

Orange: high risk

Orange calls for drastic measures – get a second job and cut out all unnecessary spending. This is the level where you need to consider cutting out things like traveling to see family or getting rid of the second car. Cable should have been cut a long time ago. You need to be careful.

• Lots of debt. Mortgage, HELOC, possibly two car payments, college loans and cannot pay off the credit card balance every month.
• No retirement savings
• No emergency fund
• No health insurance and considering government assistance for food and housing
• Under-employed, possibly only part-time.
• Expenses are greater than monthly income.

Yellow: significant risk

This person is keeping his head above water, but the slightest mistake could push him into orange territory. I put our family in this category. It was only a couple of years ago that we were at the orangy-reddish level, so even though I am not satisfied, there has been improvement.

• Several debts – possibly mortgage, HELOC, college loan, car loan
• No retirement savings
• Only one or two months of emergency funds
• Possibly on government assistance for health insurance
• Employed, but needs additional streams of revenue
• Expenses are equal to income

Blue: general risk

This person is starting to see the light at the end of the tunnel, in fact, they might be five or fewer years away from “Debt Freeeeddoom!” They need to stay disciplined and avoid unnecessary expenses.

• Low debt – possibly only mortgage debt, but able to pay extra on the principle
• Starting to save for retirement
• Three month emergency fund savings
• Good health insurance
• Good, steady job
• Income is roughly ten percent more than expenses each month

Green: low risk

Obviously, anyone’s situation can change overnight. We must all depend on the mercy of God, but from a purely temporal, mortal view, you are in pretty good shape. A green threat advisory level is characterized by the following:

• No debt, including mortgage debt
• On track for retirement savings
• Nine month emergency fund savings
• Good health insurance
• Good, steady job
• Two to one income to spending ratio each month

I hope you are all headed for green territory!

Article by Stew

Photo from Wikipedia