Your Financial Fire Drill
As we enter the eighth year of economic expansion it is hard to know exactly what to expect from the stock market and how it will impact someone personally. However, I like to worry about what one can control instead of what one cannot control. We personally cannot control the direction of the stock market or what is going to happen in the economy. What can we control?
Debt and spending. Your unsecured debt monthly payments should be less than 12% of your household income and combined with housing it should be less than 36% of your income. The closer you are to retirement the lower that credit card debt service should be. Take a look at your overall spending. How much of it is discretionary? If your household income were to suddenly go down, would you be able to adjust expenses? Also, make sure you are still saving into your retirement accounts as much as you can.
Don’t get greedy with the stock market. I have a saying, “There are bulls, bears, and pigs. And pigs get slaughtered”. So, if you have an investment that has performed well, evaluate if it is time to take the gain. Also, another cliché I have is “Don’t let the tax tail wag the dog”, meaning, don’t let paying some taxes on that gain prevent you from selling an investment that has done well. I remember counseling people before the tech bubble busted to sell and they wouldn’t because they didn’t want to pay the capital gains tax. Fast forward 18 months, the bubble busted and the stock plummeted-no tax problem now- and no gain either.
Job Skills. If you are some years away from retiring it is important to keep your job skills current. Take a class at a community college or through the local continuing education program to keep up with the latest in computers or other programs. Sudden “right sizing” by corporations can leave people vulnerable if they don’t stay current. Also, make sure you have strong networks in and out of the work world so if you do lose your job suddenly, you have fresh connections to help you.
Your health. While you can’t always avoid a serious illness, you can take steps to be healthy, like maintaining weight, exercise etc. For example, I was diagnosed with type II diabetes a few years ago, which scared me. I lost weight, exercised and now don’t need any medications. If I had left it unchecked, it could lead to blindness, limb loss, and heart problems. These would have impacted my ability to make money as well as my quality of life.
There will be a recession in our future. I cannot predict when it will happen, so be prepared. They usually come when you least want them to come.