Minimising the Risk of Personal Financial Catastrophe

We were having a conversation with a friend recently about the steps one can take to avoid becoming destitute in one's old age. It occurred to us that these same steps apply to everyone at all ages and are generally good advice.

#1 Keep your income sources diversified. No matter how good it seems to be, no basket should ever hold all your eggs. Consider the people who put their entire life savings with Madoff. This applies to jobs as well. Don't count on your career choice necessarily being there for you. If your full-time job leaves you no time for developing other income sources, at least have a back up plan.

#2 Live within your means. Aim to live on less than 75% of your income. This may seem daunting, but it is always do-able. The less you save, the more at risk you are.

#3 Live in a small, paid-for house, in an OK neighbourhood. If the neighbourhood deteriorates, move. If the neighborhood gentrifies, move (and reinvest the profit) - though this isn't too likely to happen for a while. If you can't afford to move, you have violated rules 1 & 2.

Some years ago, we were living in Duluth, Minnesota when the city went on a demolition spree. They started tearing down perfectly good houses. We were very perplexed until we discovered they were enforcing a minimum square footage zoning ordinance throughout the city - and there was no grandfathering! Long-term residents were being forced out of their homes for no other reason than the houses were 'too small'! In light of current developments, this policy was completely insane. People need to have the option of living in small houses, when they cannot afford big ones. If cities only allow big houses to be built, as people become poorer, fewer and fewer people will be able to live in their own private houses.

#4 Be physically active. It keeps you healthier and stronger. It sharpens your mind and increases your stamina for work.

#5 Learn new skills. It keeps your mind sharp.

#6 Maintain a social network. If you lack social skills, develop them.

#7 Don't opt for elective medical procedures. They are budget busters, and often do more harm than good. Learn self-care, and low cost management of conditions that require attention.