Welcome to Radical Personal Financial Show, dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. Today we continue our five-part series called "You Don't Have to Be Smart to Become Financially Independent, But You Can't Be Stupid." And here today, part four is called "Avoid Catastrophe." I've been building on my five-part framework for wealth.

In part one, we talked about increasing your income, and I shared with you the very simple idea that if you're just hardworking and diligent and conscientious, you could probably earn enough money in the industry you're in to become financially independent. In part two, with regard to expenses, I talked about controlling the big expenses and just keeping them under control so that you'll always have more money left at the end of the month than month at the end of money.

In part three, I talked about investing wisely, simply choosing a simple strategy and following it and not being stupid. And today I want to talk about avoiding catastrophe. Realistically, most of us won't face many catastrophes in our life, and you already know most of the things that you need to do to avoid those catastrophes.

First, you need to have an emergency fund. Six months worth of expenses for your household is a perfect number to shoot for. For most households, that'll be somewhere between $10,000 to $20,000. If you'll just simply make sure that you have $10,000 to $20,000 always set aside in a bank account, in cash, in your home safe, or wherever you keep your valuable items, you can weather the vast majority of emergencies that happen.

Your great aunt Sue got sick. You need to fly up and see her before she dies. You've got the money to buy the plane ticket. Car breaks down, needs a new radiator, you've got the money to pay the mechanic. Kid gets sick, you're out of work for a few days because your home taking care of your sick kid, you've got the money to make sure that your bills are paid.

You lose your job, have a hard time finding another one for a couple of months, you've got the money to pay your mortgage payment. It's very simple. Just save some money. About six months worth of expenses. Now more is cool, less is okay, but just aim for six months of expenses and you can just simply pay for the vast majority of emergencies that will happen to you.

The other types of catastrophes that most people will face are very well served by the insurance industry. There's a good chance that you might wreck your car, have some medical expenses, and need to buy a new car. There's also a very robust, very well run auto insurance business or industry, auto insurance industry, that is ready to serve you with a beautiful automobile insurance policy that will make sure that you have the money to buy a new car and to pay your medical expenses when you get in a car accident.

Just get a good car insurance policy. There's a decent chance you're going to get sick or hurt, you're going to have some medical bills and you're not going to be able to work for a certain amount of time. Good chance of that happening. There is an incredibly strong health insurance industry that is dying to sell you a health insurance policy.

Most of the time, you don't even have to go and look for it. You just have to sign up for it. There's a very strong disability insurance industry with all kinds of disability insurance agents that would love to come to your house, sit down at your kitchen table, and design for you a disability income insurance policy that would make sure that your family has money to pay your family's bills when you're sick in bed and can't earn anything.

It doesn't cost that much. There's a small chance you could die and leave behind spouse, children, parents, family members who are depending on your income for their future. There is an incredibly strong and robust life insurance industry that is constantly marketing to you to try to get you to do one thing, to pick up the phone and call them.

In a sense, it doesn't really matter who you call. You can ask the guy who's got the office down in your local bank. You can pick up the phone and call the 1-800 life insurance number that's advertised to you on the evening news. You can say yes to the life insurance agents who are calling you, who just got into the business who want to sell you a life insurance policy.

Doesn't matter whether you buy it from the old big companies or from the multi-level network marketing companies or if you just buy it on the internet. They're all pretty decent and they all solve the problem of making sure that your family has money when you die. There's a pretty decent chance that in the next decade or two of your investment lifetime, the stock market's going to completely fall apart and it's going to go down by 30 to 50%.

On average, in the average investor's lifespan, there's going to be at least one, probably two 50% declines in the value of your stocks. On average, every few years, there's going to be a 15 to 20% decline. Once a decade, there's going to be a 30, 40% decline. You can go look up the actual numbers, but the point is to expect them.

Guess what, there is an incredibly robust body of research and academic study that has been applied to this problem of how you can protect yourself against falling stock prices. It's called diversification. There are hundreds and hundreds and hundreds of people who would love to tell you about that. But really, just go down to your library, pick up a money magazine type of thing, or pick up a book, read it and do what it says, and diversify your portfolio.

There's a good chance your house will at some point in time be beat on by a hurricane or threatened by a wildfire or broken apart in an earthquake or have its roof ripped off in a tornado. There's a decent chance your hot water heater is going to leak and flood your basement.

There's a decent chance someone's going to slip and fall on your front step. But the cool thing is the home insurance industry has figured out how to protect from these problems. And if you just talk to somebody who works there and just do what they say, you'll probably be in pretty good shape.

There's a decent chance that at some point in time, your spouse is going to decide that they're out of here. Now that'll wreck your financial life. But you know what's a pretty cool thing? At some point in time, they said yes to you. And you weren't all that great, but they still said yes.

If you just simply care for them, love them, respect them, pay attention to them, and tell them about those things, and if you work on your marriage, spend a little time together, there's a decent chance you can avoid that divorce court. There's a decent chance that your children are going to face some really strong influences in their life.

And those influences may seek to cause them harm, may seek to work evil in their life and not good. But you know what? Most parents feel about like you do. Not sure what to do all the time. But realistically, it's pretty simple. Discipline your children, teach them self-discipline and character, spend time with them, and be the parent.

Be involved and be the parent. Not the friend, be the parent. And if you'll do that, you could probably turn out pretty decent children who won't put you through extraordinary grief. Friend, these things are simple. You don't have to be all that smart to do anything that I just said.

You just can't be stupid. You can't be stupid and say, "I'm not going to die." You can't be stupid and say, "I'm not going to get hurt." You can't be stupid and say, "She'll always be there." You can't be stupid and say, "Son, another time." Just listen to a country song, listen to almost any genre of music, and just commit yourself to not being stupid.

If you'll do that, you can avoid most of those major catastrophes that affect so many people. You don't have to be that smart to be financially independent, but you can't ignore the things that you need to do and expect to avoid catastrophe. All of these examples that I've given you are ordinary examples of catastrophes that we face and ways that we provide for them.

The vast majority of catastrophes could be avoided by most of those things that I just said, and you already know it. So don't look for the smart answer, don't look for the really incredible hotshot idea. Just focus on doing the things that you already know to do. Thank you for listening.

You've honored me with your time and attention, and I'm grateful for that. And I hope that I've effectively served you today with some ideas and strategies and tactics and techniques and tools that will help move you towards your goals. Before you go, three simple requests. One, if there's an idea that's been helpful to you in today's show, make a plan to take action on it.

Listening does lead to learning, but learning in and of itself doesn't automatically lead to a life change. It's action that leads to a life change. So take action. Two, take something that was helpful to you in today's show and share it with somebody that you care about. I'm depending on you to be a co-laborer with me in helping me to propagate the message that I'm seeking to share.

That helps the person that you are engaging with, and it also helps you because teaching others is one of the most effective ways for you to learn and for you to cement your learning. Three, if there's an idea that's been specifically helpful to you, and if you're gaining financial benefit from Radical Personal Finance, I'd be grateful if you'd consider paying me for this work voluntarily.

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