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Navigating the Economic Storm

By Brett Danko, CFP®

You've no doubt read the dire headlines of the past several months:

• "The Worst Financial Crisis Since the Great Depression "
• "Stock Market Plummets"
• "Banks Curtail Lending"
• "Government Deficits Likely to Exceed $1 Trillion"
• "Record Unemployment"

This is indeed an unprecedented time in American and global finance.
How then should individuals handle the apparent chaos in our financial markets? We believe clients should focus on three things:

1. Short-term - Attempt to reduce your expenses.
   
   Since many people view the term " budget" as a four letter word, we will use the term "cash flow" instead. Examine your month to month cash flow and, to the extent that you are able, find ways to cut unnecessary expenses and to manage any essential variable expenses by identifying opportunities to spend a little bit less each month. For the most part, Americans have been taking on more and more debt over the last decade and not saving nearly enough. While you may not be able to save much during these times, attempting to pay down high interest rate balances, such as those on credit cards, will help to decrease the amount of additional debt you would otherwise accumulate.
2. Long-term - Continue to keep saving for retirement.
   
   Refusing to put money into 401K's due to market instability is a step in the wrong direction. It is imperative that people continue to contribute to their retirement accounts. Even if contributions are put into money market accounts within a 401K plan, contributions should continue according to your financial ability. There will be a time when you will feel comfortable to venture back into the equity and fixed-income markets.
3. Long-term and short-term - Focus on what is truly important in life - your friends and family.
   
   In times like these it is important to remember that material things should never be our most cherished assets. If you feel as though I am trying to find a silver lining in the current financial mess, you would be correct. Americans for too long have confused needs and wants. If nothing else, the recent instability reminds us that the most important things in life have very little to do with our 401K balances.

This period of instability will not last forever.

People forget how the recession of the late '70's and early '80's influenced American policies and capitalism. At that time, we had record unemployment and inflation, high interest rates and fuel costs that were unprecedented at that time. The newspaper headlines at that time were similar to those that we are seeing now. What's important for all of us right now is to try to weather this storm and remember this period of uncertainty will not last forever.

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