Six Steps to Inoculate Yourself from the Financial Flu

Six Steps to Inoculate Yourself from the Financial Flu

Financial flu symptoms: Headache, that queasy feeling in your stomach, and an urge to hide under the covers.

It’s not easy to maintain your well being when headlines are shouting that your financial security is at stake. Moreover, media harps on threats of market meltdowns caused by political actions, rising interest rates, credit becoming more difficult to obtain, and sagging housing prices.

You sign into your retirement account and see a quarter where your balance looks like it’s taken a significant hit.

The news reports wane consumer confidence.

It’s no wonder why you have that sick feeling in the pit of your stomach and a pounding headache.

Take a breath. Remember that it’s just another day and chances are good that the sun will rise in the east tomorrow morning.

But it’s not that simple, right? We are human.

It’s difficult to ignore the headlines, news reports, dipping balances, and conversations that fill social engagements and chit chat around the coffee machine. It’s like a breeding ground for the virus known as the financial flu. You know the symptoms; and while you might just feel like there’s no hope, hang tight.

Help is on the way.

The cure for the financial flu comes in the form of good, solid knowledge and some basic strategies. Take a look:

1. Understand that news reports will exist forever, even when markets are soaring. Remember it’s the media’s job to add a dash of danger to keep you from changing the channel.

A client of mine, a retired television director, told me, “Everything you see on the news is for entertainment purposes only.” Once you realize that, you can take a breath and accept the reports as a means of keeping you interested and making network ratings rise.

2. Acknowledge that, yes, markets (stock markets, interest rate markets) are volatile. They will move up and down based on a combination of information and speculation. Understanding that, it is important that you allocate your wealth to properly reflect an appropriate amount of risk for the intended purpose. For example, if you are 35 years old and expect/or hope to retire at age 65 and you want your retirement account to last you for your life (assume age 90 or 95), that’s SIXTY years!

Can you afford to take market risk? Most likely. You will live through six business cycles (assuming they are approximately ten year cycles) and probably three recessions along the way. So what difference does it make if you have a bad month/quarter/year?

If you’re contributing to a 401(k) plan, the down markets provide the opportunity to invest at lower prices. All good, right?

3. Don’t confuse investing with speculating. If you have funds that you will most likely need in the short term (think anytime between tomorrow and the next six or seven years), taking on market risk needs to be carefully assessed; especially if your time frame is closer to tomorrow. I know it’s tempting to look at your emergency fund and think that it’s not doing “anything” for you. Well, it is.

It’s providing safety and security in case of an unexpected occurrence like, job loss, a tree falling on your house, or an uncovered medical expense. It’s important for your health and peace of mind. Your mind might tell you that it’s not that risky, but do you really know that for a fact? What’s the worst case scenario if you’re wrong, and can you live with the outcome?

4. Don’t confuse advertising and marketing from facts. The big financial institutions are itching for you to put your trust in their investing abilities.

If you decide to move in that direction, make sure you know how much you’re spending (both internal and external costs) and what level of responsibility they are taking on your behalf. Putting your trust in the wrong place is really bad for your health.

5. Know your numbers. In our “set it and forget it” world, it’s easy to just pay your bills and lose track of your purpose. For example, you might be accumulating money to provide education tuition for a child, pay off loans, or maybe a vacation.

Begin with your values and create a plan to get you there, one paycheck at a time. It means you are making incremental steps forward to reach your most important goals.

6. Examine where your biggest risks lie. It might be in your job, your health, or other areas. Understand where you can protect yourself against the big losses and build your plan accordingly.

It’s not super complicated, but you might need help, so make sure you’re working with a planner who understands all of these aspects (no, I am not talking about an insurance agent who will likely tell you that you need more coverage. While you might, make sure the advice is unbiased and the person providing the information is not benefiting from their recommendations).

There’s nothing you can do to prevent the stories, the headlines, the commercials, the talk that sends your head spinning and you diving for the covers. Think of these six steps as chicken soup for the financial flu.

Don’t allow fear, anxiety, and panic to cause you unnecessary pain and suffering. Try it, you’ll like it!