Be Your Own Bank

As the recent takeover of Bear Stearns (and soon, I fear, Lehman Brothers) shows, if you need to borrow money or sell assets to cover loans already extended, you are at the mercy of others. "Normally" there are plenty of lenders willing to offer you a loan (just look in your mailbox), but during the course of your 60+ (and getting longer all the time) years as an investor & consumer, you'll run into times that will not be "normal". This is one of them.

If you can't count on the banking system for loans, who can you count on?

Yourself.

From Genesis to Hamlet to Poor Richard to today, the same advice prevails; advice that may seem old-fashioned in good times, but can make all the difference in troubled times - save for that rainy day.

An emergency fund that allows you to weather troubled times should be part of your financial planning. Specifically, we recommend:

• An emergency fund of one year's rent or mortgage payments plus six month's of all other expenses
• Avoiding debt where another loan must be taken out or else something must be sold to pay off the debt (e.g. balloon payments)

Cash is king in times like these.