Three Strategies to Keep Your Financial Footing
Investing Financial PlanningTennessee is famous for many things, like UT football, Dolly Parton, moonshine and the Smokey Mountains. However, my family has recently been entertained by one of the area’s less conspicuous claims to fame: fainting goats.
Last summer, our neighbors introduced two baby fainting goats into the field directly adjacent to our home. These animals earned their name due to a hereditary condition that causes them tense up when they’re startled. Think of it as a full-body charley horse, except without the pain.
As amusing as it is to watch these two kids "faint" when they’re startled, it also seems like one of the worst traits to have from an evolutionary standpoint. Imagine needing to run from a predator only to have your entire body involuntarily freeze and fall over?
It’s not difficult to draw a parallel between fainting goats and the way many of us handle our finances. Like the goats that are easily enticed with a handful of grain, we have a tendency to get complacent about the basics when the markets are exciting. But when things go awry and we’re caught off-guard, many of us have a hard time staying on our feet.
As a colleague of mine likes to say, "The only future certainty is uncertainty." Rather than letting the next unexpected event cause a fainting spell, consider the following money lessons to help you keep a sure footing.
Focus on what you can control. You can’t control swings in the stock market, but you can control your savings and your debt. The lower your debt, the more financial options you have, especially during a downturn. Limit what you borrow and pay it off as quickly as possible.
Likewise, saving on a regular basis means that you have choices when faced with a financial setback. Ideally, you should be setting aside at least 10% to 15% of your income.
Don’t take unnecessary risk. Don’t worry about beating the market or about your neighbor who’s always bragging about his returns. Some exposure to stocks is a good idea in order to beat inflation, but that doesn’t mean that you need to invest 90%-100% of your money in the stock market. Instead, figure why you’re investing in the first place and take the minimum amount of risk necessary to achieve those goals.
Maintain a long-term perspective. For most investors, timing the market and prognosticating about the next hot stock is a fool’s errand. You may get out before the market dips, but you’ll also likely miss the big recovery. Once you know what allocation is appropriate to help you achieve your goals, stick to the plan through good times and bad. Giving up the opportunity to make a killing in exchange for the assurance of not getting killed is well worth it. Remember, slow and steady always wins the race.
Decision-making in times of uncertainty is a frightening and sometimes paralyzing process. Don’t let market noise cause you to freeze up when level-headed decisions are needed most.