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Steps to Financial Confidence

The hits just keep on coming! Stalled economic growth, partisan cold war in Congress, Greece teetering on the edge of bankruptcy. The U.S. stock market is like a punch-drunk boxer, trying to stagger back into the ring, only to be decked again by another round of dismal economic news.

But on closer inspection, it does not appear to be new “news” that is driving the market these days. There have been few negative surprises lately – Greece’s massive indebtedness was not built in a day, and we’ve been warned repeatedly by economists that it will take time for real improvement in both employment and housing (prices and sales). It seems that we’ve been living with these low-hanging clouds for so long that we have begun to doubt the existence of the sun.

Alas, our national problem is really a lack of confidence and certainty. Because there has not been much economic upside lately, we are going deep to the downside in our perspective on the future. With a cloudy perspective we are also less certain about our future.

Unfortunately, however, perception can – as it usually does – become reality. If we don’t believe that things will ever get better, we stop investing, buying, traveling, living our lives normally and thereby create an actual crisis to get newly depressed about: namely, a drop in "smart" consumer spending, which accounts for nearly two-thirds of our domestic economic activity. And by smart I mean we buy things we need – not just want – replacing the old and worn out.

All of this leads me to believe that it's time to break this cycle of negativism, disengage from the old news and reclaim some hope for the future. This means focusing on the things that each of us individually can control. It also means creating our own “news” doing something different and positive in our lives to make ourselves feel better and potentially richer, in the fullest sense of the word. Here are “The Great Eight: Tips for Financial Confidence” that are sure to do the trick:

  1. Disconnect from the negativity. Unplug the TV and turn off your wireless devices. Recognize that repetition does not mean intensity. Just because you’ve heard the negative news about economic growth four times from different sources does not mean that it is four times as bad.

  2. Live With the New Reality. If you haven’t fully absorbed the existing bad news in your expectations, it’s time to get it over with. That means accepting the current value of your home, your 401(k), or your brokerage account, and building a financial plan from there. It is much easier to remain confident if you see yourself making a fresh start toward building your financial security rather than waiting for the good times to return.

  3. Weather-proof. Build your investment or retirement portfolio to withstand the good times and bad. Focus on high quality investments and an allocation that you can maintain through thick and thin. A well-diversified portfolio will always have a slice of “good news” – something that is doing well in hard times.

  4. Live within your means. Your paycheck, rather than the GDP numbers, should be your economic bell-weather. If you have predictable and steady income, make sure you are setting some aside in the event that your employment situation changes. When you have money left at the end of the month rather than having to borrow ahead, your outlook on the next month – and the next – will improve significantly.

  5. Educate a child. Just spending time with a child - observing their energy, curiosity, sense of wonder and imagination – inspires hope for a better future. Put that hope to work by investing in our future by helping children learn skills – math, language, financial literacy – that will help them succeed.

  6. Learn a new skill. Study a new language or take a course in a subject matter that you never studied in school. Expanding your horizons opens more possibilities for tomorrow, in terms of careers, supplemental income and personal satisfaction.

  7. Give it away. If you want to feel “rich,” make a contribution to someone less well off than you – your favorite charity, a family member, a friend. Or if money is truly scarce, donate your time. The sense of connection to others, and being able to help, usually puts our own financial difficulties in perspective.

  8. Make a financial plan. CFP Board research has demonstrated that those who draw up a written financial plan – ideally with a CFP® professional – have more confidence and are prepared for what is to come.

It’s not a matter of whistling in the economic dark, but actually taking concrete steps to illuminate the course forward. Confidence that you are on the right path is the first, most important step toward financial security.

 

Eleanor Blayney, CFP®
CFP Board's Consumer Advocate
consumeradvocate@CFPBoard.org


October 25, 2011

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