How to Adjust Financial Plans In a Time of Challenges
Paul Fain, CFP®
“Sell crazy someplace else. We’re all stocked up here.” (Jack Nicholson in the movie “As Good as It Gets”).
I decided to watch a recording of the recent presidential debate. It got crazy! Especially when two very grown men, vying for leadership of the most powerful nation on Earth, had what amounted to a playground argument about golf skills.
The debate was just a sign of the times: wars, political chaos, an assassination attempt, $20 hamburger restaurant meals, a spike in COVID-19 cases, faulty software shutting down global air travel, relentless and sophisticated cybercrime infiltrating our personal lives.
Beyond a pricey burger, the cost of living has reset. We are all feeling the pains of more expensive grocery bills, increased home and auto-repair costs, and housing prices and rent levels that have soared.
These concerns and others have contributed to a sense of uncertainty. Still, we should not accept fear and anxiety as normal. It is vital that we navigate these challenges thoughtfully to work toward a more stable future.
It is inevitable that lots of people are going to remain glued to the (fill-in-the-blank) channel that is selling crazy, feeding their worries and fears. Hopefully, the rest of us will (re)adjust to the reality that life is never all pleasure and comfort. Change, uncertainty and even chaos will always exist.
In this strange season of challenges, what adjustments can we make to our financial plans?
Though the rise in inflation is cooling, our living expenses are painfully higher. We need to review and adjust our spending plans accordingly. This may require unexpected changes, especially in our discretionary spending.
Americans entered this year with a record $17 trillion in household debt. It will require discipline and determination to reign in this dream killer and to avoid delinquent payments or defaults.
Our plans for retirement probably need adjustments as well. The common levers to stay on track during periods of challenge are: 1) save more; 2) expect to spend less during retirement; or 3) work longer.
We need to intentionally create and build up a cash reserve (aka an emergency fund). If you have not done so, make it your top priority. A reserve fund helps you avoid going into debt when unexpected expenses occur. A cash cushion also serves as an opportunity fund for investing or other life goals.
The U.S. stock market has hit 36 new highs in 2024. Do not be greedy. Now is a great time to trim winners, sell losers, gut-check your risk/reward profile, and review your diversification strategy. “Crazy” takes many forms, with regularity, but often by surprise. Market declines happen. Recessions are cyclical realities.
On the bright side, most expert predictions for the remainder of the year are positive, for the economy, for interest rates and inflation, and for the investment markets.
We will be OK. In the meantime: Be kind. Give grace. Judge less.
This article originally appeared in the Knoxville News Sentinel online on July 26, 2024. Correction of household debt statistic from million to trillion.
