10 Basics for Financial Peace of Mind in Tough Times
How to Stay Calm in a Tough Market
In the midst of recent market turmoil, it is more important than ever to focus on your long term goals and develop patience in order to achieve financial peace of mind.
We know where the market has been, but nobody truly knows where it is going in the future. Historically, in fear driven markets such as the one we are experiencing right now, there usually is a bounce back, or rally, in stock prices when normalcy begins to set in again. Historically is the key word though, and this country has never quite seen a financial crisis like it is currently experiencing. There is no true precedent, as times have changed significantly since the Great Depression.
To survive uncertain economic times while keeping your sanity, it is essential to get down the basics. Here are 10 things that you can do to find peace of mind when times are tough:
1. Aggressively Pay Down Debt
If you have income that can go into the market or towards paying down your debt, now is a great time to tackle your debt. I personally will be applying income towards paying down my mortgage, which will give me a 5.83% guaranteed return on investment. If you have credit card debt, or other high interest, unsecured forms of debt, they should be your first priority. Here are some tips on how to attack your debt.
2. Analyze your Monthly Recurring Expenses & Trim the Fat
Most recurring monthly expenses come in the form of entertainment that you don’t necessarily need. These non-essentials really add up over time. For instance, do you need to spend $90 per month on cable or satellite TV, especially when digital TV will soon be accessible to all for free? Look at your monthly expenses and look internally to see if you really NEED them. Movie rental subscriptions, magazine subscriptions, newspaper, cable or satellite TV, land line phone, cell phone data plan, etc. In order to keep track of these expenses, check out this free budget spreadsheet.
3. Reduce your Energy Expenses
There are a number of ways to reduce your energy expenses, including:
- Cutting your water bill
- Reducing your heating and cooling expenses
- Cutting back on the cost of commuting
4. Don’t Pay Attention to the Markets
When you are continuously watching your stock and mutual fund prices drop, it is hard not to become obsessed with the market. Seeing paper losses can push you to panic and make irrational decisions such as selling a stock when the market is at its low point. You’re not really making rational decisions at this point, you are following your emotions. In order to avoid this trap completely, just stop logging in to your investment accounts or checking stock quotes. Keep your money in for the long haul. If you’re in good financial standing, this tip alone may completely wipe out your day-to-day market-driven anxiety. You’ll thank yourself later.
5. Keep More of your Paycheck
If you are getting a large tax refund every year, but struggling on a month-to-month basis, you may want to consider raising your tax allowances. The more allowances you claim, the less the government holds onto over the year and the lower your refund will be. This allows you to use more of your earned income over the year instead of giving an interest-free loan to the government. Here is more info on tax allowances.
6. Increase your Emergency Savings
Perhaps it is time to increase your emergency savings account as a safety net in the event of a family member losing income due to economic slowdown. Experts typically recommend that you save six months worth of living expenses, however, in times like this it may be wise to push it to a year or more if you have the means to do so.
7. Recognizing Wants vs. Needs
With all one-time purchases it is more important than ever to really ask yourself if you truly need the item you are about to buy. Focus on recognizing when emotion is driving your purchasing behavior. In order to delay emotional purchase gratification, resist buying things immediately. Sit on your decision to purchase for a few days.
8. Smile More at Work
In the unfortunate event that your employer should make cutbacks in an economic slowdown, make it hard for them to cut YOU. I’m not suggesting to be inauthentic at work, rather, being friendly and helpful when appropriate, having a positive attitude, and being efficient in what you do.
9. Don’t Stop Putting Money into the Market
It may seem crazy, but now is not the time to stop making contributions to your personal investing or retirement savings accounts. Let’s imagine we are at the bottom of a market decline. In that case, if you stopped investing now, you’d miss out on purchasing shares that are at their cheapest price (and would start buying again as prices rebounded). This is a strategy that compounds your losses and limits your gains. Contributing a steady amount over equal periods of time is the way to go.
10. Keep Some Cash on Hand
With banks failing left and right, your mattress never looked as safe as it does now. Sure, the FDIC insures your deposits up to $100,000, but if your bank fails it could take weeks, if not months to get your money back. If you need this money in a pinch, you would be out of luck. Keeping a little cash on hand is an extra safeguard in the event of a bank run.
What kind of things are you doing to protect yourself in these tough economic times?