What can we glean from the various global economic “crises” over the last few years? Plenty. We should build our own financial plan in a different way:
1. Minimize your debt. My parents used to tell me, “if you can’t afford it, don’t buy it”. We have become such a big consumer culture – gotta have the latest, greatest electronic gadget, the new big house or re-model it to look new, the newest in everything out there. Household debt peaked at $13.9 trillion in 2008, almost double the figure from 2000. This equates to 133% of disposable income!! While 1st quarter 2011 HH debt was down to $11.5 trillion, many households still carry way too much debt. Countries have been challenged with this, the same as consumers.
Make some sacrifices and make larger payments to get yourself out of debt. Build an expense budget annually, and save for big ticket items and don’t buy until you have the money. Debt servicing costs – interest – for the consumer are a huge barrier to financial health.
2. Make the hard decisions. While our country and others seemingly aren’t capable of doing this, you must do so in your own life. Sometimes you have to do without something you “want” but which is not absolutely necessary. What is really important in your life? Is it driving the fanciest car in the neighborhood or is saving for the really important goals – children’s education, your retirement transition, your travel dreams – more meaningful?
This is where goal setting in the financial planning process is so valuable. If you identify your most important “gotta haves”, it’s easier to “just say no” to other temptations. When you know you are working toward goals that are really important to you, other items seem less enticing. Learn to say “no” to “like to haves” versus “gotta haves.” You may be surprised that your quality of life really doesn’t suffer.
3. Do invest in yourself and skills. Sadly, despite massive debt, we haven’t invested fully in our core infrastructure such as roads and bridges. In this dynamic, global economy, the need for certain career skills become less valuable or even obsolete. The same is true of individuals. Evaluating our human capital, our work experience, education and skills, is just as important as taking stock of our financial capital. Make sure you are building and maintaining career skills and experience that make you marketable as the world changes.