Remembering The Basics
I recently saw a billboard that read, Recession 101: It’s only a test; not a final exam.
While there are different perspectives about whether we’re heading towards a depression, double-dip recession, anemic growth or a V-shaped recovery, I believe it’s important to remember that the current situation is a point-in-time in which we need to make adjustments to work through it. This brings us back to basic principles we can use to build a strong foundation to weather financial storms.
- Think long-term with goals and investing: By creating long-term goals and implementing strategies to achieve them, we can anticipate and help to mitigate some of the short-term obstacles. When planning is not properly done for long-term goals and they suddenly need to be achieved in a short time period, there can be a tendency for people to get more aggressive and take on more risk then they desire. Have you identified your goals, such as retirement, education, buying a home, a child’s wedding, that trip to Italy, etc? We should be meeting together once a year to talk about these goals and make necessary changes to ensure you meet them.
- Spend less than is earned: Yes, this means creating a budget and monitoring it. This will help you know where you’re spending your money, identify how much cushion you have should problems arise and how you can best make changes to address these problems. For example, it was eye opening to my wife and me when we realized how much we spent on gifts (holidays, weddings, birthdays, showers, etc.). If you need some help getting started, give us a call or stop by and we can give you an outline to work with that will be helpful without being too burdensome.
- Maintain liquidity: Establish an emergency savings account to meet three-six months of monthly expenses. This should cover your fixed expenses; items that you can’t cut back on or skip for a month such as your mortgage or car payments. Variable expenses, such as eating out and entertainment, can more easily and quickly be adjusted. The smaller the amount of your fixed expenses and obligations, the greater the flexibility you will have in adjusting your spending when necessary.
- Minimize the use of debt: Debt enslaves you to the lender. Debt commits your financial resources and limits your ability to take advantage of new opportunities. Could you continue to make your debt payments if you experience a job loss or decrease in income? If you can, great, but then also consider how you could further improve your situation.
While your current situation might be fine, it’s important to prepare for the impact of different scenarios on your finances. There are no instant solutions. Therefore, planning not only helps to achieve goals, but to ride out the storm.
We are here to help you prepare
Thank you
Mike