How Can Current Events Impact Your Financial Wellness?
It seems that every time you go online, check your phone, turn on the TV or read your local newspaper, there's a story discussing the state of the economy. It may be about how the stock market is reacting to a particular event, a major employer's plans to expand or cut back, or whether interest rates will change.
Sometimes these economic events can influence the way you think about your personal and financial future. The money management choices you make can have long-lasting effects on your financial wellness.
For a financially healthy response to current events, be sure to avoid these mistakes.
Basing Financial Decisions on Fear
When there's a major storm watch in the weather report, you probably feel calmer when you have plenty of food, water, flashlight batteries, and cash on hand.
Taking precautions when a financial storm might be on the horizon is a good practice, too. But there's a big difference between preparation and panic. The latter response can lead to unwise financial moves such as withdrawing money from your retirement savings or falling for a get-rich-quick scheme.
Your economic readiness plan should include building up your emergency fund so that you have three to six months' worth of income stashed away and paying down as much of your high-interest credit card debt as you can. Look for ways to cut expenses and prepare yourself to live on less. See what it's like to go a little longer between haircuts or come up with some fun ideas for entertaining at home instead of going out.
Abandoning Your Long-Term Financial Plans
At least once a year, it makes sense to consider whether your financial priorities have changed and whether circumstances call for adjusting the timeline for reaching some of your goals.
If the financial news in the media is making you more cautious about your spending, it's probably a good time for one of those financial planning reviews. Plans to purchase a new home can probably wait another year or so, and the money you were planning to use for a vacation abroad should go into your emergency fund instead. If you think your job might be at risk or the raise you've been hoping for will be put on hold, that's bound to affect your financial choices.
But don't be so quick to abandon the financial goals that you've already carefully considered and created a long-term plan to achieve. Tweak your short-term plans if you need to, but stick with your long-term financial planning strategy.
Running Away from the Market
Concerns about a possible economic downturn in the future may make you nervous about what will happen to the stock market. Maybe you've even thought that the best thing for your financial wellness would be to get out of the market. Take a deep breath and heed the advice of financial experts who warn against such a move.
The last thing you should do is change your investment strategy because of recession fears or in an attempt to time the market. It's worth noting that market investors who stayed put through the Great Recession's rock-bottom scare in the fall of 2008 recovered their losses and made gains when the economy turned around.
Make sure your portfolio is diversified in terms of industries and types of investments so that the impact of any losses in one or more areas will be limited. Keep your retirement timeline and risk tolerance in mind, and consider whether this might be a good time to rebalance your portfolio to soften the blow of any recession-related losses. But don't let fear push you into making drastic changes that might jeopardize your financial wellness.
Don't allow current events to stir up your financial fears. Instead, use them as motivation to improve your financial wellness through choices that prepare you to survive the next economic upheaval and improve your long-range financial security.
Figure out the right balance between being proactive and being patient. A financial advisor can provide valuable guidance.