By Wendy Mihm | Thursday January 6, 2011
Tough Years for Household Finances
2008 – 2010 were incredibly difficult economic years. Maybe you and/or your spouse lost your jobs. Perhaps you had a business fail, or lost your health insurance or other benefits. Or maybe you watched 40% of the value of your investment portfolios evaporate into thin air.
Whatever your economic status, its unlikely you escaped these last few years unscathed by the Great Recession. If your family is anything like ours, you are still recovering.
Economists are projecting 2011 to be a sluggish year for employment growth, predicting it to hover in the 9.5% range throughout the year. However a panel of 51 economists from the National Association of Business Economics predicted recently (in Q3 of 2010) that, though the US economic recovery was slow, there was little to indicate we were headed into the dreaded “double dip recession.” It’s not the best news, but there is light at the end of the tunnel. These same economists expect things will pick up by the end of 2011.
So what does that mean for the rest of us? It means it’s time for us to do the responsible thing: get back up on our horses and start riding again.
It’s Time to Get Your Finances Back on Track
At FinancialRx, we are all about leading a happy, healthy financial life. One of the ways we advocate for this is to remind our readers that it takes time to build wealth. Rarely is this message more important than when things go badly.
I had to remind myself of this last year when I saw that my daughter’s 529 plan had lost more than 35% of its value. I was so discouraged that I was tempted, very tempted, to discontinue our automatic monthly contributions. And I write a financial blog for a living! But this would have been one of the dumbest and least responsible things I could have done, because I would have missed buying into the market while the prices were low.
Since that time, her account has recovered almost completely.
With that lesson in mind, here are 5 key strategies you can implement now to clear your financial roadblocks and get your finances back on track.
1. Conduct an economic “perception versus reality” check.
Money is an emotional subject and many of us can get caught up in how it feels to have suffered a financial setback. Economists generally agree that the damage is done and we are slowly headed toward a recovery. This means that you must assess the real financial damage that your family has suffered. Then you must detach yourself from it emotionally and decide to address it head-on with a plan.
2. Assess your largest financial loss and attack that first.
Were or are you unemployed? Did you lose your home to foreclosure? Did you lose your health insurance? If you suffered more than one of these losses, decide which of them is having the greatest financial impact on your family and go after that first. If it is unemployment, you must go after this with the most gusto, and you must consider fresh ideas, such as relocation, part-time options, a new career path, job-sharing, consulting or other self-employment options. Things are starting to shake loose in this arena – a relative of mine who lives in Michigan was unemployed for 18 months just received two plumb job offers! It really can happen.
However, if you lose focus on the most important goal ahead of you, it is easy to become overwhelmed and not accomplish progress on any of them. Pick one goal and go after it with everything you’ve got. Things tend to pick up in the new year, when everyone has renewed focus and energy, including you.
3. Resist the urge to fund your expenses with credit cards.
I cannot stress this enough. Credit cards will only get you into a whole new heap of trouble. I really don’t have to lecture you on this, do I?
4. Start saving and investing again.
It sounds counter-intuitive and it’s a little scary, but the best time to invest in the market is often when it’s down. Why? Because part of the definition of a “down market” is that stock prices are low. And you want to buy things when prices are low because you can get more of whatever it is you’re buying. But I, just like you, often have a hard time with this because when things are low, it seems like they will get lower. And sometimes they will. But often they get higher again. That’s why you want to get right back on your saving and investing horses and start riding again. If you had a 401k plan or an IRA or a Roth IRA, it’s time to start investing again. If you had an emergency savings fund it’s time to start contributing to it again – if you didn’t, it’s time to start one.
5. Automate, automate, automate your saving and investment contributions.
Don’t rely on your will power and memory to save and invest. Automate! All your contributions to your retirement investments, your children’s education funds, your emergency savings fund and the like should be automated so you never have to think about them.
Plus, once these contributions are set up as automatic withdraws from your checking account, you won’t even miss them.
The Great Recession was hard on all of us. However your family struggled—and continues to struggle—I wish you the best for a happy, healthy financial recovery.
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