Preparing yourself for your financial future is critical, especially now when the outlook seems darkest. Even though it may not seem like the time to better your financial future, with the economy in a recession, it is a “bear market” in the finance world right now, meaning that investor confidence is shaken so prices are lower. Even if your goal is simply to maintain your financial situation, there are things that you can do to better insulate yourself from market fluctuations.
1. Fixed Expenses
No matter what the economic situation, the less money you owe the better. Spend any extra money you have on trying to pay down credit card bills and any loans you may have.
Fixed expenses can also be beneficial when planning your financial situation. If you do have any adjustable rate loans or credit cards, trade them in for a fixed-rate, you will always know exactly how much the payment is.
Self-reliance comes in several forms, all equally important. Firstly, try to rely on your own ability to pay on any optional expense or purchase. Give careful attention to what you spend money on and what you would like to do. For many people, it is possible to cut back on daily expenses enough to pay for the vacation, home renovation, etc. that they would have taken out a loan to do.
Self-reliance is also important as regards retirement. Social Security and Medicare will likely not be able to fill the needs of many Americans by the time they reach the golden age of 65 years old. Instead, find avenues in which to invest your money to save for the years ahead.
3. Portfolio Tactics
If you decide to invest in the financial markets, be it stocks, bonds, mutual funds, etc., spend some time developing tactics for your portfolio. The most important financial concept you will ever learn is “hedging”. Hedging is the practice of balancing one investment against another so that at least one investment is always making money. Traditional investors used to hedge one stock against another (i.e. Coke against Pepsi) instead of hedging types of investments (mutual funds against currency, or stocks against commodities).
When investing in financial markets, make sure that, if the bottom fell out tomorrow, your investments would still be earning some kind of return.