We’re In Financial War
|October 2, 2008||Posted by Roshawn Watson under Uncategorized|
Unfortunately, most Americans are badly prepared. You would think with the heightened awareness of our current economic state, we would feel urgency and vigilance to position ourselves to weather the current and coming financial storms. Instead, there is widespread fear but little action.
Image Credit: Ben
Admittedly, it is hard to be confident in one’s investments when there is so much volatility and uncertainty. For example, the Dow Jones lost ~700 points on Monday only to gain over 400 points on Tuesday. Still, Wall Street is being pummeled regardless of how you look at it. Whether looking at small or large caps, foreign equities, REITs, or commodities, nearly everything is down. According to Morningstar researchers
“…91% of all mutual funds in existence have lost money so far this year. To put that in perspective, in 2001 — the year Enron imploded, Internet stocks kept crashing and al Qaeda attacked the U.S. — more than one out of every three funds still managed to generate positive returns.” (Jason Zweig WSJ)
Perhaps the even bigger challenge for us is knowing what to do.
Control What You Can
With recent economic woes and turmoil, it is critical for consumers to rein in what we can control: our spending and savings.
It is so important to protect your family by having a healthy financial reserve. The economy has changed drastically recently, and it is critical to evaluate your financial strategy to ensure that you are prepared. A few months ago Suze Orman was commenting about whether or not we were in recession (listen to her commentary here). Her point about increasing our levels of preparedness really rings true today.
Increase Your Financial Reserves
If we are indeed in financial war, then it’s time to make sure that our reserves are ready. During tumultuous financial times, having a adequate emergency fund cannot be understated. It is the defensive strategy that often decides the outcome of the battle.
Think about the current job market. With a staggering 600,000 job losses and counting, it would likely take longer to find another job in one’s chosen field. Job security is an illusion for most. Additionally, regardless of what the gross domestic product (GDP) is doing, our dollars are receeding.
Despite how you feel about the bailout, greedy companies, and overly optimistic borrowers, what’s most relevant is YOUR economy.
Whether you are referring to prices for gas, food, or airplane tickets, it is getting more expensive to live. Thus, it is reasonable to maintain an emergency fund for 8-12 months worth of expenses instead of 3-6 months. Although some critics may argue against having a more hefty fund, they ignore the fact that if one does have a little extra padding, those funds can be redirected to other needs after things calm down.
One of the best ways to free up some extra money for your emergency fund is to slash those expenses. In fact, unless those expenses are reduced, research suggest there is little to no money left for the emergency fund. Last week, I mentioned how 40% of homeowners are overextended. Recently, an intriguing study suggested that nearly half of employees live from paycheck to paycheck.
A quarter of workers said they don’t put any money aside for savings each month. Of those who do save, 34 percent set aside less than $100 a month for savings, and 18 percent save $50 or less.
Meaningful change rarely occurs unintentionally. Purposefully reduce expenditures and prepare your reserves. These steps may be the deciding factors for who wins and who loses the financial war, so don’t be caught unarmed.
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Copyright 2008, Roshawn Watson, Pharm.D. All Rights Reserved.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.