FSI News
August 2009
Surviving Tough Times
By Denise Wilcox, CFP®
One of the greatest challenges in financial planning is that there are always limits to the resources we can plan with. In other words, sometimes there just isn't enough to meet the objectives. The following strategies should be considered not only now but even as the economy stabalizes and the good old days of prosperity return. It's all about making intentional decisions with your long term plan in mind.
Think Twice Before You Buy In today's environment it's critical to make spending decisions by balancing need with ability. In other words, don't buy what you can't afford. And if you don't know what you can or can't afford it's time to update your cash flow statement.
Put the Credit Cards in the Freezer and Stop the Madness
The greatest burden on our cash flow is credit card debt. If you can't pay cash then perhaps you cannot afford to buy. If you want a reality check carry a small notebook and record where your dollars are spent and how you paid. You may be surprised. If nothing else you're likely to spend less as you hold yourself accountable on paper. You might even shgare it with your spouse or a friend - if they gasp you may want to take that as a hint.
Build Assets to Support Your Spending
More often than not we spend our money on depreciating assets. Consider the difference with building investments that may grow and potentially provide cash flow to pay for those things you want most. This is not a new idea- it's a concept that has created millionaires.
It's All Up To You
I always wished for a wealthy relative who would leave me oodles of money and I could retire young. I don't have any wealthy relatives. My family and I cannot rely on anymore but ourselves. It's us or bust. That is why it's so important to sit down once a month and take stock of successes and challenges.
In an online article dated May 22, 2008 provided by Investopedia.com, journalist Lisa Smith noted that we might assume not spending as much may lead to lower stock prices and little economic growth. As an example she looked at Japan - a country that has historically has high savings levels compared with their consumer spending.
Ms. Smith writes: "While being a net lender is a c concept that the West abandoned some time after World War II, it continued to be practiced in Japan. During the mid 1970's, Reuters reports that Japanese consumers saved some 20% of their disposable incomes. During Japan's economic slump in the 1990s, the Nikkei 225 fell from a peak of 39,000 in 1989 to 16,000 in 1992. Gross domestic product growth averaged less than 1% per year, but personal savings remained in the double digits. Although the unemployment rate rose from less than 2.5% in 1990 to just under 5% in 2000, with an average of 3% according to the US Department of Labor, it still remained lower than the rate in most industrialized nations. The net result/ Japan remained a healthy, vibrant, wealthy country even with a poorly performing stock market."
With a solid financial plan a weak market won't break you. Set you back? Perhaps, but it comes back to following some basic guidelines and being committed to your plan that gives you a high probability of living that daydream.
Can't get enough of Denise Wilcox's financial wisdom?
Get your weekly fix with The Weekly Market Update! You can download her podcast every monday and listen to her on the go with your favorite mp3 player or listen online!
Is a Self Directed IRA in your financial future?
