We live in a very uncertain time right now with lots of unknowns, whether geopolitical, economic, technological, or environmental. These issues seemingly knock on our door on a regular basis. In fact this is probably what you are currently reading about in the news and is at the forefront of your everyday life.
It is in times like this you may wonder, what should I do with my money? Or, isn’t this time different than before? People are unsure and nervous about the future and what lies ahead. I always tell people who ask me these questions that first and foremost I am not a soothsayer and I don't have a crystal ball but I do have a list of 5 time-tested guidelines and principles that I believe everyone should adhere to. These include the following:
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Have a Written Financial Plan - have a plan that factors in your long-term goals and objectives. This plan should show you where you are today in relation to where you want to be in say 5, 10, or 20 years. Are you on track to reaching your goals? What happens if our economy goes into a prolonged recession? Will you be okay? Does your family understand the plan? Is everyone on the same page?
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Have a Plan B - always have a backup plan! This may be as simple as cutting back on some expenses or it may be more drastic such as finding a new job or starting a new career. Nothing stays the same forever and you need to be prepared ahead of time before things get too tight and force you to make decisions that you didn’t want to make. You would be surprised how many people don’t have a Plan B.
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Have Emergency Cash Flow - most people don’t have enough set aside in savings to cover a very modest amount of money needed if they were forced to come up with these funds. A recent study by Bankrate showed that 56% of people could not cover a $1,000 expense with their savings. They would have to use other means including credit cards. Don’t get caught in this same situation. Build up an emergency savings threshold that would allow you and your family to be okay (cover your monthly expenses) in situations like this. I like to see at least one month of savings built up but 2-3 months is much better. This money can be set aside in a savings account and can still earn a fairly good amount of interest right now (4-5%).
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Have a Diversified Investment Portfolio - make sure you don’t have all your eggs in one basket. You need to own different things - stocks, bonds, commodities, real estate - to ensure you are not too heavily concentrated in one area. Many people have a lot of their money tied up into the Magnificent Seven stocks right now. Granted these companies have done really well recently but you need to be careful of being overly concentrated in just these 7 names. The technology sector can and will sell off and these companies will not be immune to that when this happens.
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Have Patience and Discipline - time in the market beats timing the market. You have to be patient when investing and know that you are going to see periods of time when volatility is up and your money is down. This is a fact and has happened throughout the history of the market. Make sure you stay disciplined including doing things that will help you even more in the long run such as continuing to contribute to your retirement plans and paying off any outstanding debts you may own.
When life feels uncertain and you are unsure about your financial future, stick to these five principles and know that things are going to be okay!
Nothing stays the same forever and you need to be prepared ahead of time before things get too tight and force you to make decisions that you didn’t want to make.
