Take Control of Your Finances in Difficult Economic Times

Take Control of Your Finances in
Difficult Economic Times
Let’s face it. We are in a time of economic uncertainty. The news is full of information about the stock market, interest rates, and mortgage foreclosures. What can we do? The good news is that there are ways to maintain control in times of economic uncertainty, according to Dr. Rebecca J. Travnichek, Family Financial Education Specialist with University of Missouri Extension. While no one individual, not even the Federal Reserve chairman, can control the economy and the stock market, let alone predict the direction that they are moving, we can control the ways we think and act. Dr. Barbara O’Neill with Rutgers Cooperative Extension in New Jersey has developed eight ways we can maintain control over our finances when things are seemingly "out of control":
1. Watch Your Spending—In times of economic uncertainty, it’s wise to "live below your means" and practice what economists call "precautionary savings." There is some recent evidence that Americans are already doing this on a large scale. Consumer spending figures are down and, according to the Bureau of Economic Analysis, the U.S. savings rate increased to almost 3% of disposable income in the second quarter of 2008, up from 1% or less during the past three years.
2. Prepare a Spending Plan—A spending plan is a written "best estimate" of the cost of future spending and saving. Ideally, a spending plan should balance income and expenses, including regular savings for future financial goals.
3. Tune Out Market "Noise"—People who are experiencing a lack of control put a lot of stock in any information that they hear. Daily financial reports that, by design, report moment by moment market fluctuations, with commentary, feed on market jitters and can cause some people to panic. Consider limiting your exposure to detailed stock market reports (e.g., CNN and CNBC) or, at the very least, keep reminding yourself that you are investing for the long term.
4. Minimize Investment Expenses—Pay attention to the expenses charged by mutual funds. This information is found in the mutual fund’s prospectus, which can often be downloaded from the Internet.
5. Save Money, Be Happy—The insurance company Northwestern Mutual recently conducted a study that found that people who do things that constitute good planning tend to feel happier than those who don’t. Specific practices that made "planners" feel better about life included setting financial goals, taking steps (saving) to achieve goals, and spending within a budget or spending plan.
6. Study Investment History—Financial markets often seem less scary when someone has previously experienced a grueling bear market and/or has learned about the characteristics and historical performance of investments. We know from history, for example, that stocks can be very volatile day to day but, over periods of 10 years or longer, volatility is greatly reduced. A good source of information about investing is University of Missouri Extension’s Investment Basics self-study course. In times of turbulence and change, knowledge is power!
7. Consider Getting Professional Advice—Professional financial advisors can provide perspective to nervous investors during uncertain economic times. They also have many helpful tools, such as software to run retirement income withdrawal scenarios that can estimate how long someone’s money will last. To locate a financial advisor, start by asking for referrals from other trusted advisors such as a CPA or attorney. Friends and co-workers may also have suggestions.
8. Take Care of Yourself—The last thing that someone needs in an uncertain economy is health problems, especially if your job (and access to health insurance) is shaky. Major health "issues" such as diabetes and cancer, are expensive to treat and a drain on household wealth. Put the odds in your favor by taking charge of your health. Specific actions such as losing weight, exercising regularly, and quitting smoking provide many associated financial benefits. Health is, indeed, the greatest wealth.
While the economy seems to be on a roller coaster ride, the best remedy for the motion sickness is to control the things that we can. Research has shown that people who maintain some measure of control over their lives in times of crisis and uncertainty generally cope better and feel less powerless than those who don’t. Making plans, and revising them when needed, is also a characteristic of financially savvy people. Dr. Travnichek hopes that you follow the suggestions of Dr. Barbara O’Neill and become financially savvy in 2009.
For more information on this or any other family or personal finance topic, contact Dr. Rebecca J. Travnichek at the Andrew County Extension Center (816) 324-3147.