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March 10, 2022
Uncertainty. Fear. Confusion. Sacrifice. Acceptance. Stress. Recently, it seems like we are experiencing a new global catastrophe annually. And, strong emotions about the world are piled on top of worry about our personal finances. However, it is possible to strengthen your financial well-being, even in times like this.
While we can’t prevent the next pandemic and there is not much we can do about war, inflation, the coming energy crunch, or the bouncing stock market, there are things you can do to improve your own financial situation – even with all the new uncertainties.
Here are 10 financial well being tips that you can use, no matter what is going on in the world. Improve your financial well-being today and for the future.
Whatever your account balances say now, it doesn’t matter if you don’t have to withdraw the money.
The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst case year-, two-year, five-year or longer contraction of the economy will eventually rebound assuming that history holds true.
There is no reason to sell if you don’t need the money. You will only be taking the losses. The losses are not a sure thing, not at all a reality, unless you sell.
A financial wellness tip, is to focus on what you can control now. Financial uncertainty can feel overwhelming. And, absolutely no one knows what is going to happen to our economy. But, you can assess how you are doing today.
How is your cash flow?
Spending more? Inflation is real. You definitely see it at the gas station, and probably the grocery store too. Now is a good time to really look at your spending and make some cuts if necessary.
Can you increase income? The job market is strong. If you are still working, now may be a good time to ask for a raise or even shift jobs.
Can you keep saving and investing? When times get tough, savings habits often fall by the wayside. However, when the stock market is down is the BEST time to save and invest.
Do you need access to cash or income now? Assess the best (and worst) sources of emergency money and income
Doing okay? Breathe.
Not doing okay? Breathe!
The pandemic was without precedent and the war with Ukraine is pitting a nuclear power, Russia, against the Western world, not something we have faced in the last 30 years. But, what a 30 years it has been.
The pace at which we live and innovate is unprecedentedly fast. Any financial losses may be quickly regained. It was argued that we would be in a much worse position as we emerged from the pandemic but we aren’t. The stock and real estate markets stayed remarkably robust through that crisis.
Is recent past performance an indicator of future success? Nope. Maybe? We don’t know. However, it is important to remember that over the long haul, the financial markets have always gone up.
In the absence of being able to tell the future, it is important that you run worst case scenarios and create plans AND backup plans for your current and future finances. Facing the worst possible scenario is one proven way to overcome anxiety. In most cases, you’ll find that the worst case either isn’t that bad or it can be addressed.
Don’t just worry about what is going to happen to your finances, run scenarios and find out. No matter what, in all possible eventualities, you will probably find that you can make things be okay.
Here are a few worst case scenarios (and some opportunities) to try in the NewRetirement Planner.
It may sound scary, but facing fears is one of the best ways to deal with them. Run different scenarios with your savings:
It has been a long time since inflation was a scary force on our financial plans. But, the pandemic and resulting supply chain issues definitely triggered higher prices. And, the war in Ukraine will likely make inflation worse.
In inflationary times, you can cut expenses to stay afloat. You can also increase your income. Have you considered:
Keep an eye on interest rates and see if you are able to refinance into a lower rate. Think about your mortgage and other debt (credit cards, car loans, medical and any student loan obligations) you are carrying.
Now is a better time than usual to assess and update your monthly spending — especially since habits have changed.
Use the NewRetirement Budgeter to:
Make sure all of your documents are up to date: your will, letters of instruction, financial power of attorney, living trust, medical power of attorney, living will and all beneficiary designations on accounts.
You probably know that you need a well diversified asset allocation plan.
However, most people are not as familiar with the idea of an Investment Policy Statement (IPS).
An IPS is meant to define:
A strong IPS can be an invaluable tool for helping you achieve your financial objectives and to stay the course when unpredictable things happen.
Did you know that NewRetirement offers flat fee advisory services? You can collaborate with a Certified Financial Planner who has taken a fiduciary oath and specializes in retirement. Your advisor will:
Set up a discovery call with NewRetirement Advisors.
When the entire market goes down, one strategy that can pay off big is to improve the mix of stocks you own.
Perhaps you own some “lower-quality” stocks or funds, you could potentially sell those holdings and buy into companies of higher quality and better long term prospects.
Look to sell companies with high fixed costs or lots of debt and buy stocks with high levels of growth, cash-rich balance sheets and good returns.
Of course, you need may some expertise to do this effectively.
Warren Buffet once said:
“What an investor needs is the ability to correctly evaluate selected businesses. You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
It is a good idea to know something about the companies whose stock you own and to really believe in them. You will be less likely to panic and sell in a major downturn if you actually understand what the company does and know enough about the industry to project whether or not there will be a market for whatever the company makes in the future.
Don’t have the expertise yourself? Talk with a certified financial advisor.
If you have been considering a Roth conversion, doing the transfer when the market is down means that you’ll pay income taxes on a lower portfolio value.
And, when the market bounces back, you will benefit from future tax-free growth and withdrawals from the Roth account.
A few things to keep in mind:
1) A Roth conversion is a permanent move. It used to be you could undo the conversion, but the Secure Act changed that.
2) You’ll want to make sure that the conversion doesn’t raise your Medicare Part B and Part D premiums in future years.
3) Be sure you are careful to follow all conversion rules and reinvest while market is down.
4) Most importantly, make sure you have the money available to pay the taxes owed on the conversion. Ideally not from the account you are converting which reduces the efficiency of a conversion.
It is easy for you to model different Roth conversion amounts in the NewRetirement Planner. PlannerPlus users can:
Learn more about Roth Conversions.
If possible, keep up with your regular savings contributions. And, if you have cash available, consider buying. The time to buy into the markets is when they are down.
You don’t have to time the exact bottom. When the market is sliding, many people buy a little bit every day and keep buying every time the market dips.
The advantage of this strategy is that you are more likely to get in before things rocket back up.
You see, the reality is that stocks typically soar back upward well before the crisis that provoked the selloff has run its course. The market recovery from the 2008-09 financial crisis illustrates this vividly:
For the vast majority of investors, especially those who have a long term investment strategy, doing NOTHING when stock markets go down is the BEST policy.
The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst case year- or two-year contraction of the economy will likely eventually rebound.
So, most of the time, it is important to remain calm, don’t let emotions or stress take over and just do nothing. Ignore it.
If you are considering any moves, you may want to consult with a Certified Financial Planner. Did you know that NewRetirement offers flat fee advisory services? You can collaborate with an advisor who has taken a fiduciary oath and specializes in retirement to:
Here are more tips for what to do when the stock market goes down.
Depending on your personality and the news of the day, controlling worry is a tall order. The following tips might not help with financial anxiety, but they are sure to make you feel better overall.
Being informed is critical. Curling up with your phone or laptop all day and endlessly scrolling is not healthy or useful. Experts suggest you set a limit for how much time you spend consuming information each day and stick to it.
I used to think that breathing exercises were baloney until a doctor explained to me that you can trick your body into relaxing by mimicking the way a healthy body inhales and exhales when actually relaxed. A good basic breathing exercise is to 1) inhale for four seconds, 2) hold breath for four seconds and then 3) exhale for four seconds. Repeat and feel your body relax.
Research shows that people who use social media actively — by sending messages, leaving comments or talking in group chats, for example — report being happier than those who simply scroll through their feeds, absorbing news stories and viral videos.
There are lots of online programs to help you learn.
There is a meme going around, a woman joking that she goes out to her driveway to sit in her car for 30 minutes not going anywhere. It is almost like being in her morning commute. Maybe you are not going to maintain the schedule you had last week, but do try to organize your day.
Spend a couple of minutes every day writing about what worries you. There is mounting evidence that keeping a journal provides a host of emotional and health benefits, including reducing anxiety.
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