Get Your Financial House in Order

HOW TO NAVIGATE AN UNCERTAIN ECONOMY

The financial markets have experienced unpredictable swings in the last two years. Grocery, utility and gas prices continue to rise. After months of negative wage growth, supply chain disruptions and rising inflation, many people feel frustrated that their money isn’t going as far. With no calm in sight, many feel tired of being financially stretched. Rather than despair, now is a good time to review your finances and get your house in order in case of a recession. Setting a budget and sticking to it may sound punitive, but it can be actually quite freeing. 

Make a plan
Allan Malina of Servus Capital Management suggests establishing goals then creating a budget. “Write down all your monthly expenses and write down your main goals in life. What do you want to achieve this year — a better vacation, a new couch, a new car?” Once your targets are on paper, review your expenses and see what you can cut. 

Do you want to take on a second, part-time job or find it in your budget? Take-out food, specialty coffees, magazine subscriptions, phone apps and gym memberships are often items that eat up large parts of your take-home pay. You may be able to eliminate some of these costly daily habits and save those funds over the next year. It is a matter of prioritizing what is most important to you and your family, then allocating resources.

“Budgets create freedom for people to plan their life,” Malina explains. “Most people do not like budgets; they think they are life chains. Setting goals and watching expenses actually allows splurging on items like vacations, buying a new couch, or saving for a car.” It may also lead to enjoying an anxiety-free retirement. 

Interestingly, data shows that the 2022 luxury market exploded despite a decline in overall retail sales. People are cutting back on specialty brands at the grocery store, shopping for hygiene necessities in bulk and buying fewer clothes in order to indulge in one exceptional luxury item, a special evening out or a getaway. Experiences are in high demand. 

A downturn opportunity
Cash is king, so now is the time to keep some extra funds for purchasing items you want that others must sell. A downturn can provide the “opportunity to buy big ticket items such as cars, ATVs, couches and collectables that people are discounting or liquidating,” Malina suggests. It is often a good time to buy distressed investments such as real estate and collectables. As Warren Buffet says, “Be fearful when others are greedy and greedy when others are fearful.”

Put off big expenditures that are not necessities that have an interest rate tied to them until rates improve. Higher interest rates make borrowing more expensive. You could pay more than an item is really worth over time. Another caveat: Using credit may be tempting for points or rewards, but it can cause you to overspend.

The inflation challenge
Inflation fatigue and watching the value of your money erode can cause anxiety and depression. It is best to manage expectations of your finances by sticking to your budget and your plan. “A budget helps you identify places you overspend,” says Malina. Replace expensive entertainment with low or no-cost recreation. Be creative and find new hobbies for your free time. Look for alternative forms of enjoyment; try out some activities that do not require large expenditures. Instead of going out to the movies, invite friends over for drinks and a game night. Pack snacks and take the family to the park for a walk or tennis match. Challenge yourself and your friends to complete a series of hikes or learn a foreign language. Create a family activity contest. Everyone needs to eat so make dinner time a competition to cook the best but least expensive meal a few nights a week.

Don’t obsess over watching the returns in your investment accounts. You should check them periodically during an annual review. If you consume your thoughts with financial anxiety, it can cause unnecessary distress. You don’t want marital problems or depression because of your portfolio. If your investments are causing you to lose sleep, make an adjustment. ✦

Quick tips for uncertain times
• Focus on yourself and your family.
• Set goals around things that matter.
• Maintain your health.
• Economize on everyday expenses so you can splurge on what you most want.