How to Prepare for the Fiscal Cliff in 2013

charlie avatarWith the fiscal cliff of 2013 staring us in the face the following Christian joke comes to mind:

“A man is on top of a roof during a great flood. A man comes by in a boat and says “get in, get in!” The religious man replies, “No I have faith in God, he will grant me a miracle.”

Later the water is up to his waist and another boat comes by and the guy tells him to get in again. He responds that he has faith in God and God will give him a miracle. With the water at about chest high, another boat comes to rescue him, but he turns down the offer again because “God will grant him a miracle.” 

With the water at chin high, a helicopter throws down a ladder and they tell him to get in. Mumbling with the water in his mouth, he again turns down the request for help. So he drowns.

He arrives at the gates of heaven and says to Peter, “What happened? I put my faith in God and He let me drown!” St. Peter responds, “We sent you three boats and a helicopter, what more did you want?”

As funny as the joke may be, the reality is the “fiscal cliff” is soon approaching. Much like a storm is soon to be approaching. The fiscal cliff reminds me a lot of the Great Depression, and how very few people were prepared. In my discussion with my Grandpa in “How to prepare for a Great Depression” he talked about how no one was prepared, and if they had only been prepared. Here are a few of the points of what is expected to happen in the 2013:

  • Higher Taxes on income, dividends, and decreasing deductions
  • Debt ceiling reached at the end of the year
  • Defense Budget Cuts – $100 Billion

With the above being true each person needs to have a plan for how they can whether the storm. Here are a few ideas on how you can prepare for the financial cliff.

  • Reduce fixed expenses – if you lose your job or take a paycut, then reducing your fixed expenses will help extend your cash and ride out the recession.
  • Know how long you can be unemployed – earlier this year I wrote on “How to prepare for a layoff“, which will be important to have if you get laidoff.
  • Grow your own foods – learn how to grow food in a tiny garden and become less dependent on the grocery store's fluctuating prices.
  • Engage in your communities and neighborhoods – work with your neighbors to help each other out through good times and bad. You never know when someone in your community will help you get a job or may have things for you to barter with.
  • Reduce taxes – do everything you can this year to put money into after tax retirement accounts (Roth IRA or Roth 401k), and next year do everything you can to put in pre-tax investments. This is mainly due to how much taxes are suppose to go up, and deductions are to go down.
  • Diversify your income – if you work in the defense industry the budget cuts are more likely to hit you. Take extra precautions to protect yourself against a potential job loss.
  • Become an entreprenuer – take your employement into your own hands, and become your boss. A good place to start would be $100 Startup by Chris Guillebeau.
  • Cash is king – if the 2013 fiscal cliff launches us into severe recession, then saving cash now will benefit you in many ways. Many investment options might open up, and you will be able to weather rising unemployment.

Now if you don't take my word for it, then check out this quote from the

“if the CBO is right, going over the fiscal cliff will extend the recession by at least two years, if not more. During that period, not only will people lose jobs, but the US will suffer a significant loss in productivity, a sharp decline in worker and business morale, an erosion of its competitive edge on the global stage, and a flight of investment capital out of the country. In the fast-paced and rapidly evolving business world of today, the damage done to our economy by these elements will not just be severe but largely irreversible, which could then erase any gains that we make in the long term through fiscal discipline. Not to mention that decreased productivity, market share, and capital will force many businesses into bankruptcy or at least stall their growth while international competitors fill that void and effectively “take the throne”.” (Why the fiscal cliff is much steeper than you think)

Do you think we'll go into a severe recession in 2013? How are you preparing?

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