I saw an interesting documentary last night:  A Crude Awakening.  The film lays out a somewhat frightening scenario regarding oil consumption versus demand.  The consensus is that our oil production is or will soon be on the decline, whereas demand is skyrocketing.  Since our civilization relies so heavily on the cheap energy present in oil, the ramifications of a serious drop in production are quite serious.

By most estimates from Peak Oil believers, global oil production will crash and bottom out sometime between now and when we retire.  If we assume for a minute that the documentary is correct, oil production will fade and that we will not be prepared with a new supply of cheap energy, what could you do at this point to prepare?  Here are a couple of ideas to weather the crash that will benefit you even if we develop a new energy supply.
First and foremost, I would recommend that you strive to reduce your debt load. Credit card balances, personal loans, and auto loans are generally non-productive high-interest rate debts that do not reinforce your financial position.  Mortgages and student loans offer tax advantages and are generally at very reasonable interest rates, so I would hold onto these until you have significant cash surpluses.
Build up some emergency savings.  Living paycheck to paycheck will eventually lead to financial trouble for most people.  Having a bare minimum of one month’s living expenses in a money market account is a smart move.  If you have debt, try to strike a balance between funding your emergency savings and reducing your debt.

Once you have reduced your debt load and funded an emergency savings account, it is time to think about investments.  For young people, I am a strong proponent of the Roth IRA.  Start a Roth IRA and sock away as much as you can into a diversified basket of index funds.  If oil production crashes, worldwide stock prices may as well, but I would still recommend a diversified approach that includes domestic stocks, developed and emerging foreign economies, real estate investment trusts, and possibly a stake in commodities as an inflation hedge.

Lastly, if the most dire doomsday predictions come true about peak oil, then the prepared will have some assets outside of the traditional investment system (banks and brokerages).  If you are truly concerned about the impact of peak oil, consider holding a percentage of your assets in tangible gold or silver.  Due to the difficulties surrounding storage and insurance, I would not put a great stake into physical precious metals, but a 1-5% of your assets in metals may become truly valuable if civilization as we know it comes crashing down around us.

For more information on Peak Oil and how to prepare, check out http://www.lifeaftertheoilcrash.net/.  I am not quite prepared to stockpile food  and camping gear, but  nevertheless I feel that a bit of financial preparedness will go a long way towards improving your standard of living whether oil crashes or not.  What are your thoughts?  How can young people prepare for peak oil?

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This entry was posted on Monday, June 2nd, 2008 at 11:15 am and is filed under General. You may e-mail this post to a friend. You may print this page. Responses are currently closed.