Tips for Survival and Prosperity in Challenging Economic Times
We have all been impacted in some shape or form by the worst financial crisis experienced in a generation. The question now becomes what did we learn from this mess and how can we better prepare for a more prosperous financial future?
Here are some important tips to follow:
Save and Invest: Before paying others, pay yourself first. You can achieve this goal by saving and investing your money. Given the weak state of our government “safety net” programs, such as Medicare and Social Security, it has become more important than ever to save. Life spans are extending as well, meaning a larger “nest egg” is needed for retirement. If you don’t have the time, discipline, or emotional make-up to manage your own money, then seek out a fee-only advisor* who does not have a conflict of interest in regards to building your wealth.
Tighten Belt: In order to save and invest you need to be in a position where you are creating excess income. Cutting costs is one way to generate additional income. Eating out less, buying used, taking more affordable vacations, conserving energy, purchasing private label goods are a few easy ways to save money that will accumulate over time. If those efforts are still not adequate, one should then contemplate adjusting their living situation (i.e., down-size) or pursue additional income opportunities – either through a pay raise or higher paying job alternatives.
Pay Down Debt: If your credit card company is charging you a 15-20% rate on unpaid credit card balances and gouging you for late-fees and cash advances, then look for other sources of affordable financing. A home equity line of credit or second mortgage may make sense for some, if the fees and lower interest rates make economic sense. Contact a financial planner or tax professional to determine the appropriateness of these debt alternatives. Ultimately, the goal is to reduce debt and create more financial flexibility.
Take Free Money: If your employer offers matching payments to your retirement plan contributions, they are effectively offering you free money. Take it! The government offers you some tax deferral savings through IRA (Individual Retirement Account) contributions, so take advantage of that benefit as well.
Form a 6-Month Emergency Fund: The economy may be in a bottoming-out phase; however we are not out of the woods yet. Unemployment is approaching 10% and many companies and industries continue to struggle. Build a protective financial cushion should you or your family hit a bump in the road.
Invest in Yourself: Investing for retirement is crucial, however investing in yourself is just as, if not more, important than traditional investing. What I’m referring to is job training, education, and health awareness. We live in a globalized economy and in order to compete against those starving for our jobs, we need to improve our skills and education. Lastly, we cannot neglect our health. Finances need to be put in perspective. Our health should be a top priority and a disciplined balance between diet and exercise will not only reduce stress, but it will also improve mental health.
Times have been challenging, but when the going gets rough, the tough go saving. Take control of your financial future rather than letting economic circumstances control you. Financial success however should not come at the expense of your health, so also focus on a balanced program of diet and exercise. There are no free lunches in this world, but following these steps will help lead you on a path to prosperity – even in these challenging economic times.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
*DISCLOSURE: Wade W. Slome, CFA, CFP is President and Founder of Sidoxia Capital Management, LLC (www.Sidoxia.com), a fee-only Registered Investment Advisory firm headquartered in Newport Beach, California.