When there is a big world event – especially one that seems to have an impact on economic markets – many people wonder what they should do in response to protect their financial well being.
The best time to protect yourself from a financial downturn isn’t when the downturn happens. It’s before it happens. If you live in the part of the country that regularly has tornadoes, you don’t start building a storm shelter when you see the sky getting dark. You build the shelter during good weather and keep it stocked with the things you’d need if a storm hits – food, water, batteries, flashlights, candles, and blankets. To prepare for financial storms, have a balanced financial situation. It’s good to have some money for long term goals invested in the stock market – in the US and abroad – and to have some money in more stable accounts like certificates of deposit, bonds, or bond mutual funds. You also need savings in something stable like a bank savings account or a money market fund. The point of the money in savings isn’t to make money, it’s to avoid losing money and to have if you need to pay for an unexpected expense or for your living expenses if your income is interrupted.
Next, recognize what impacts you and what doesn’t. A worldwide financial catastrophe impacts everyone. And some big financial events have ripples that can touch us all. But a negative event that happens thousands of miles away doesn’t necessarily impact you directly. When there are effects, go back to the planning you did ahead of time. If needed, tap into your savings. But don’t react in a panic to something that doesn’t effect you. It can have the self-fulfilling negative impact of becoming a bad incident for you if decisions are made out of emotion, instead of well thought-out conclusions.
In making short term and long term decisions about your financial situation, be realistic about what you can control and what you can’t, then plan accordingly. You can’t control the weather, but you can control if you have insurance to cover weather damage to your home or vehicle. You can’t control if your boss is always in a bad mood, hiring and firing people on a whim. But you can look for a more stable job if you find yourself with an irrational employer.
If you are surrounded by negative or uncertain news, look for stability and for opportunities. If you’re in a store with some items on sale, you don’t run from the sale items in fear. You look to see if there are some bargain items you can use. Is a slump in the stock market a bad event or an opportunity to buy good quality mutual funds at bargain prices?
You can’t always control world events, but you can control how you plan for them and how you react.