When Everything Around You Is In Flux...
Because right now, no matter where you live or what you believe, it feels like everything around us is in flux. Lots of flux.
Uncertainty quickly leads to anxiety. And, for most people, searching for security and assurances, it isn’t long before questions and fears about money surface with a vengeance.
What To Do (Financially) When Panic Is Setting In
Let’s assume you’re following YNAB’s Four Rules. You have regular budget meetings, assess priorities, look ahead to the future to plan for larger, less frequent expenses and roll with the punches as needed. Heck, maybe your Age of Money tends to stay well above 60 days.
Day to day cash flow management? Check.
If your finances were a restaurant, we’d say that you have the seasonal menu down pat, and the food you’re preparing based on that menu is delicious. Things are running smoothly in your restaurant’s kitchen.
What’s on my mind today, though, is the need for us all to step back from the kitchen and menu planning, and perhaps look at the restaurant as a whole.
Sometimes it’s important to step back from the hands-on management of your finances and revisit your fundamental strategies. The easiest way for me to talk about strategy is to talk about my personal strategy, and that way you can take from it what you will and ignore the rest.
Your strategy should be built on bedrock principles. Principles that stand the test of time, and remain firm and true, regardless of what is going on around you. This is a foundation you can fall back on when you are uncertain, and find your bearings:
Always Be Saving
No matter what life has thrown at us so far, we have always lived on less than we earn. We’ve been through extremely lean times and have operated just a bit leaner in order to stick to this principle. It gives me psychological power over my situation when I know that I don’t need to consume everything we earn—ever.
Understand Your Investing
I don’t invest in anything I don’t thoroughly understand. If you don’t understand what an index fund is, you shouldn’t invest in it. If you don’t understand the ins and outs of rental property investing, you shouldn’t buy rental properties. (I wrote a small primer if you’d like to learn enough to start investing. It’s $.99 on Kindle. I’d make it free but they won’t let me.)
Never Borrow Money to Consume
I don’t borrow money for things that I will consume (food, movies, cars, education,* vacations, etc.). So far, so good.
(*Education is a tricky one, no? Is it not an investment more than an item of consumption? In its current form, at its current price, and with what it promises to give you in return, I feel it’s more like consumption.)
Reading I’d suggest for further study on this principle: Total Money Makeover.
Insure What You Can’t Afford to Lose
I wouldn’t want my family to try and figure out how to live without my income, so we have life insurance. I would have a heck of a time replacing Julie’s economic value as a stay-at-home mom to our six kids, so she has life insurance. The cars are insured. The house is insured. That HDMI cable I bought at Best Buy last week? Not insured (though the cashier asked and I about died of laughter).
Optimize High-Leverage Points
This means I focus disproportionately on 1) lowering disproportionately high expenses and 2) increasing my income. I’m a work in progress on this principle because I tend to obsess over even the smallest of expenses, which is a great way for me to procrastinate making hard decisions about the expenses that really matter.
At any rate, look at your housing, transportation, taxes, income, and investment strategy. All of those are High-Leverage points of optimization over your lifetime.
Always Be Giving
This principle is a way of life for me, if I lived in the time of Shakespeare, to bite my thumb at money in all its absurdity. When you give, you’re basically saying, “Hey money, I don’t need you! Ha!” I find this very empowering. Giving makes me and my family happier.
I don’t really have any suggested reading on this one. I’d just highly recommend figuring out how you can give on a regular basis and see what happens. Make it sting a little bit.
And The Final Principle—Stick To Your Principles!
These are my unchanging principles. I go back to these when I need to get my bearings. I urge you to consider not just your money management, but also money principles that will keep you grounded when everything around you is in flux.