Thursday, January 3

Financial Risk Advisory System

Home and SecurityIn cooperation with the Department of Home and Security, and with my tongue planted firmly in cheek, I present the Financial Risk Advisory System. However, as you will surely notice, great effort has been taken to ensure that this advisory system provides concrete guidelines and practical advice which should prove useful.

Please note that the following threat assessment levels are based upon employment status and the relationship between income and spending levels. Also, it is important to point out that some leeway is provided in terms of determining your individual threat level and the selection of appropriate response measures.

Home and Security Financial Risk Advisory SystemRed: Underemployed / Using Credit

- Find more work
- Find financial assistance
- Mobilize all household members
- Implement extreme frugality initiatives
- Prepare selective defaulting plans
- Goal is to transition to blue status

Orange: Underemployed / Negative Savings

- Find more work
- Implement moderate frugality initiatives
- Prepare extreme frugality plans
- Prepare household member mobilization plans
- Goal is to transition to blue status

Yellow: Employed / Negative Savings

- Find a higher paying job
- Implement modest frugality initiatives
- Implement strict budgeting procedures
- Prepare moderate frugality plans
- Goal is to transition to blue status

Blue: Employed / Making Ends Meet

- Implement modest frugality initiatives
- Implement budgeting procedures
- Prepare credit repayment plans
- Prepare investment plans
- Goal is to transition to green status

Green: Employed / Positive Savings

- Prepare modest frugality initiatives
- Prepare budgeting plan
- Implement credit repayment plans
- Implement investment plans
- Goal is to be ready for a status change

Citizen Guidance on the Home and Security Financial Risk Advisory System
The following material is provided to assist in threat level determination and to allow parents and other authority figures to pre-educate citizens allocated to their responsibility.

Discussion of Threat Level GREEN
Based upon expectations of a normal childhood, lucky citizens with financially secure parents should find themselves at or near threat level green upon entering the workforce - after completion of high school or post secondary education. It is the responsibility of citizens in this state to undertake efforts at budget preparation and to adequately prepare for an involuntary transition to a higher threat level. As well, steps must be taken to repay debts, generate savings, manage investments and plan for retirement.

It is of course the responsibility of parents to take steps to ensure that their children do have the knowledge and discipline necessary to enter the working world in threat level green.

Suggested readings: The First Job.

Discussion of Threat Level BLUE
Most citizens will find themselves facing this threat level at some point during their lives. Perhaps they entered the work world without an adequate financial education or perhaps they faced rising expenses due to credit based asset acquisition. In either case, runaway spending must be curbed. A budget must be prepared and areas of potential waste must be uncovered.

In many cases employed individuals will fall into poor habits including: lack of lunch preparation which results in excessive lunch expenses, lack of meal planning which results in empty fridges and cupboards leading to excessing dining out or ordering in, an undisciplined approach to spending based on the inability to afford desired items prior to entering the full time work force, or excessive spending on interest areas and hobbies.

Generally, most fully employed single citizens or double income couples should have little trouble migrating from blue status to green status following a systematic analysis of spending habits and appropriate budgetary and disciplinary adjustments. Modest frugality measures as discussed often suffice. However, it is the responsibility of citizens to prepare for unexpected circumstances

Suggested readings: The First Job, Beware the Anti-Frugal.

Discussion of Threat Level YELLOW
Upon entering threat level yellow citizens must immediately realize that they are facing future danger. Savings cannot be relied upon indefinitely. Modest measures as discussed for threat level blue may suffice, but it may be necessary to cut deeper.

At this point decisions have to be made concerning what is and what is not really a vital expense. For example, enhanced cable television, liberal use of text messaging, extravagant vacations, optional travel, frequent entertainment and other entitlement style expenditures may be pared.

It must be understood that threat level yellow represents a serious and deteriorating condition. Household meetings and discussion may be required to get buy in for current or future cost reduction measures.

Suggested readings: Beware the Anti-Frugal, Where The Money Goes, Freezer Cooking for One, Rice.

Discussion of Threat Level ORANGE
Though similar to threat level yellow, threat level orange is a different shade of trouble. When income is below normal or expected levels and savings are being utilized it may be difficult or impossible to transition to a cash positive situation. At this point things may be somewhat out of control of the citizen until they are able to repair their income.

The goal at this point must be to stem the flow of money as much as possible. Strict budgeting, cancellation of non-essential services, and moderate to extreme levels of frugality should all be enacted. Obviously, a family with a large degree of emergency savings would have more time to make adjustments, and could delay more severe measures based on the rate of savings utilization.

Suggested readings: Sharp Frugal Instincts, Extreme Frugality Meal Plan, Cheap Food.

Discussion of Threat Level RED
Once this threat level has been entered it is past time to pull out all the stops. The only thing that should not be sacrificed at this point is health. You may have to pick and choose which creditors to pay and which creditors to default on. However, you must be aware of the potential for global default provisions once this decision point is reached.

For example, you might decide to sacrifice payment on several credit cards, furniture, and non-essential services while keeping up with car payments and household rent. The idea would be to keep the family fed and warm while retaining the ability to look for work or drive to work in the event you find additional or new employment.

This is also a time that other family members may be able to kick in towards expenses. Family members working part time could certainly contribute some money towards food or other required expenses as long as their work did not interfere with their ongoing education.

Suggested readings: Extreme Frugality Meal Plan, How to Stretch Ground Beef, Cheap Food, Calorie Cycling Diet.

Additional Notes
Although this was created as somewhat of a parody it does bring to light a lot of things that can be left unmentioned in many families. The value of budgeting, planning for the future, and the importance of not throwing away money when it becomes available are messages that are often not conveyed. Instead, these issues are left to be discovered as challenges arise.

It is also important to realize that changes in threat level can happen no matter how responsible and prudent one is. Employers can go bankrupt. Job hunting may involve difficult to pay expenses. Health issues can interfere with the ability to work. Disasters can unleash large uninsured expenses. Investments can be wiped out. Of course, there is no need to panic, but it does pay to realize that such things happen.

NOTE: Included in this week's festival of frugality!

Frugal Guy said...
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17 comments:

Brooke said...

So funny. I think I've been at every stage and in between! Thanks for another funny post!

Anonymous said...

Great post. IT is helpful. I just paid off a huge debt. I never thought I would see the light at the end of the tunnel but, I did. Your tips really helped me to find a happy medium. Thanks Annette P.S. Creativity is the key to paying down debt!!!

Frugal Guy said...

Brooke, Annette, thanks for the comments.

Making people laugh and/or being able to somehow help people chart a new path is what it's all about.

Anonymous said...

My budget is a laugh but, with creative ways I scrape by and it is amazing what you can do with whatever you have. Thanks Frugal Guy!!!

Princess Pugalicious, the Debt-Free Pug said...

Yeah, I am FINALLY in the green. Whew. But it took me three frickin years to get here. Thanks.

Oh no, what's that smell? DebtSmellsLikePoopies.com

Frugal Guy said...

Anon, Pug, thanks for dropping in and leaving a note!

Amanda @ Me vs Debt said...

This is great :) When I graduated college 8 months ago I went from a red to a yellow... two months ago I moved up to a blue... on my way to a green!

Frugal Guy said...

Amanda, thank you.

Great job on getting things under control quickly.

Jake Stichler said...

Looks like I am most definitely Red. Big surprise.

ThriftyShopper said...

Woot! I'm in the green. Thanks for the great post, as always :)

Cheapskate Living said...

Wow. I have never seen the personal financial levels defined quite like this. Very good!


Frugal Living at Cheapskateliving.org

Frugal Guy said...

Jake, Thrifty, Cheapskate, thanks for your comments.

I'm still in the red myself Jake, but I do have an interview scheduled, so perhaps I can start climbing back up soon...

Jake Stichler said...

Well, I start my new job tomorrow night, so in a few weeks (after a couple of paychecks), I expect to at least be... wow, looking at it, I'll be green. I put 10% of every pay into my emergency fund, which kind of forces savings, but that doesn't mean I'll be in good shape - I've run up my card terribly lately, and will probably be looking for a part time job to help myself out. $8/hr blows.

S.P. Gass said...

This is a great site! I'm glad I found it. Here's a frugality measure to consider: Cancel Cable/Satellite TV subscriptions: http://lowtechtimes.com/2008/02/11/cablesatellite-vs-free-tv/

Frugal Guy said...

Jake, I know what it is like. Being green is great, in that the pressure is off, but it doesn't mean you don't have a massive history to start whittling away at.

S.P., thanks for the note.

Jennifer said...

Great post - love the threat levels. Let's just say I'm moving my way up....

Frugal Guy said...

Jennifer, though my threat level had been pretty serious at one point I had a great time writing this.

Thanks for the note.