Time for the Tough to Get Going
You have undoubtedly heard some variation of the following… “The time to make your mark is during times of adversity,” or “When times get tough, the tough get going.”
There are a whole lot of people and businesses having a “tough time” dealing with our economy right now, but amidst all of the doom and gloom surrounding the stock market, depreciating housing values, and rising unemployment, real opportunities exist for those that are paying attention. Believe it or not, it is much easier to distinguish yourself and establish your own path to success when things aren’t going so well.
When times are good, it seems like everyone is an expert stock picker or a real estate baron. Positive results can sometimes cause people to ask fewer questions and not pay as much attention to the fundamentals of sound financial management and when those results are a product of luck versus skill, fortunes will fall much faster and further than they rose.
When times are tough, only those with a measurable goal and legitimate plan will succeed.
Everybody has a financial goal that they have yet to achieve; maybe you want to pay for your children’s education or purchase that dream house that has always been out of reach. Many of us would like to find a way to not be so dependent on the next paycheck or simply to do more with what we are already making.
Financially speaking, there has never been a better time during your lifetime to capitalize on the moment and achieve a goal that previously might not have been attainable. Now is the time to act and there are three key steps that should be part of your action plan.
Pay Down Debt
This is the most important step and the one that is most often overlooked. Your debt is often the last thing you are thinking about when money is rolling in and your financial future looks bright. During those times, people can easily fool themselves into thinking that there will always be enough time and enough income to pay down whatever debt they are accumulating. What many people fail to account for, however, is that debt doesn’t go away or reduce when the tough times inevitably roll in. A simple exercise helps put this reality in perspective. Take out a sheet of paper and list your assets (house, savings, investments, etc.) on the left side of it. List all of your debts (mortgage, loans, other monthly bills) on the right side. Now, pretend that a recession has hit and fold your sheet of paper down the middle of the page vertically and hold the paper so that only the right side is facing you. What you see is what will remain for you to manage when the tough times hit. Are you prepared? Will you be one of those people that are able to “get going” and succeed despite the state of the economy?
One sure way to set yourself on that path is to make sure that your debt is manageable under any circumstances. What is manageable to you is going to be different than what is manageable for your neighbor or your co-worker, but roughly speaking, you should never commit more than 50% of your gross income to debt. There are absolutely going to be times when you will be justified in paying a little bit more for something than what you had planned, but it should never be a habit. Stretching a little bit here and there is okay and probably even good for you. Just as when you are about to exercise, a little stretching and loosening up can go a long way toward a great workout. Over reaching to the point where you injure yourself will finish the workout before you ever get started and if you over stretch over a long period of time, you may never get to exercise again.
Also note that there is a clear distinction between paying debt down and paying it off. While living debt free would be fantastic, it is also not that realistic for most of us. So, if you have credit card debt, pay that down first. Don’t worry about paying it off immediately. The important step is the one you take in establishing your plan and working toward your goal. Once your credit card debt is under control, make it a point to only incur costs that you can pay off each month. If you have or are about to acquire a mortgage, leave enough room to make an extra payment every once in awhile. If you need to get a car loan, first decide what your transportation requirement is and then stay as close to what you absolutely need as possible.
Shop for the Best Bargains and BUY
Think about how it would feel if you walked into your favorite department store and everything you ever wanted to buy was on sale at deep discounts. That is exactly the way it is right now for virtually any investment out there, including real estate. Chances are, the home that you have always wanted is at least 20% cheaper than it was as recently as 18 months ago. If the average price of a home is around $250,000 then you are looking at a savings of $50,000!
If you have thought about starting a college fund or there is a stock or a mutual fund that you want to put a few dollars toward, now would be a great time to take the plunge. Whether you purchase a stock, mutual fund shares, or a 529 for higher education, you will be able to purchase substantially more today than you would’ve been able to purchase last year. Additionally, you’ll be in a better position to reap the benefits and gains as the prices go up in the future.
The same logic applies to your participation in a 401k or deferred compensation program through your employer. All of the selections available to you in those programs today reflect greatly reduced prices so you will be able to buy more shares with the same amount of money. If you are not in one of these programs and one is available to you, get in right away. If you are already a participant in one of these programs, consider increasing your contributions to take advantage of the great buying opportunities that exist.
Every single one of these opportunities will also help you to build wealth so you have the chance to experience the dual thrill of finding a bargain and taking a meaningful step toward greater financial success.
Diversify and Balance
These principles are important at all times and especially so during tough times. If you have or are going to incur debt, don’t borrow it all in one place. If you are getting a mortgage, remember that you will need something left over to furnish your new house and pay your real estate taxes and utilities. If you are going to buy a new car, remember that it will also cost money to put gas in it and insure it. If you are going to run up your credit card bill, remember that you also need to pay for your mortgage and your auto loan.
At the same time, don’t spend all of your investable money on one stock or one mutual fund. Do your research and determine what combination of options will best suit you and help you to meet your financial goals.
When you diversify your choices and you balance the manner in which you handle your financial needs, you build a healthy foundation for meeting your goals and you protect yourself from bearing the full negative impact of a recession or economic downturn.
It is always helpful when you can work with someone who is trustworthy and knowledgeable in these areas. A trusted advisor and confidant will alleviate some of the uncertainty you may feel as you attempt to take advantage of the opportunities available to you and allow you to concentrate on asking the right questions and maintaining your self-discipline. Just remember that being financially tough and “getting going” is as simple as paying down debt, investing, and balancing your choices.
Scott Arney
Chief Executive Officer
Chicago Patrolmen’s Federal Credit Union
