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How To Make a Solid Financial Plan For 2009

Posted by lawman2 on December 29, 2008

finance1BOSTON–2008 had people talking to themselves, feeling like every move was wrong and there was some better course of action out there, some road untaken that would have made everything more comfortable.

In my case, instead of self-conversations, I’m talking about changing the letter I write myself at the end of every year.

It’s my personal twist on New Year’s resolutions, and if you’re one of the people who is heading into the new year wondering what you did right or wrong in the old one, it’s an exercise you might want to try for 2009.

The whole thing starts with my personal dislike for New Year’s resolutions, which have always struck me as big, overblown promises that are forgotten once the resolve is broken for a single moment. By comparison, setting specific personal goals for the year allows you to have an off-day — or a stretch of months where the target is out of mind — while also giving you a deadline to try to get things done.

With that in mind, each year I make a long list of personal goals, covering everything from my weight (Fat Boy failed miserably on that one in 2008), to tasks I want to finish at home or work (nailed most of those) to financial bulls-eyes I want to hit (mixed results in ’08). When the list is complete (usually two or three dozen ideas), I send it to myself; the sealed envelope is then pinned to the board in my office — a constant reminder that I have things to do and goals to achieve — where it stays until it is opened and reviewed 12 months later.

I don’t commit every goal to memory, and always make more targets than I could ever keep, but I find that the process helps me set priorities and get things done. It’s a quirky system, but it has worked for me for more than 20 years, and for many readers who have tried it since I first wrote about it more than 15 years ago.

Anyone trying to set 2009 financial goals must recognize that the road ahead may be so bumpy and disappointing that it makes long-term targets feel as if they are forever out of reach. As such, the goal-setting process is particularly good for helping people recognize that, even in the worst of times, they can make progress towards their hopes and dreams.

In case you want to try my goal-setting exercise, here are some financial ideas for ’09 that you might want to include on your list:

Have a plan, make a plan, review your old plans

There are plenty of people without a plan who have lucked into success, where dumb luck delivers superior results. (“I was too scared to invest my money anywhere, so I kept it in a savings account and it was the smartest decision I ever made.”)

Rather than rely on luck, develop a long-term plan you can live with, recognizing that a lousy stock market may force you to step up savings or cut spending to get ahead.

Make one of your goals a target for your net worth 12 months from now, and make sure you have a plan in place to achieve it; then, set a bulls-eye for your net worth 10 or 20 years from now, and make a plan for achieving that goal too. If you can achieve the former, you will be on pace for the latter, and will come out of 2009 more confident in your ability to escape tough markets with reasonable results.

Have a plan for going off your plan

This isn’t as contradictory as it sounds. One big problem in down markets is that people stick to their program — what worked in the past and what they expect to work over time — until they reach a point where they just can’t take it any more and trash the whole thing. If that breaking point comes at the worst possible time — and 2009 will be a lot closer to a turn-around point than anything we saw in ’08 — it maximizes losses and minimizes recovery potential.

If you have taken a beating in 2008, but you are sticking by your long-term holdings in hopes of a future bounce-back, you still need an exit strategy, something that says “If this drops to point X, I will protect what I have left by selling half of my stake. If it drops to Y, I’m out completely, because I’d rather have what’s left than run the risk of having next to nothing for the foreseeable future.”

Call it your “capitulation plan,” but this lets you use your emotions and foresight to minimize the regrets that happen when you look back and say “I should have sold when it hit X.”

And if you have been out of the market and on the sideline, you need to have designs on when you will get back in, on the market conditions that you need to see to entice you back into stocks.

Invest in your debt

If you have debts, paying ahead to minimize the interest you owe may be the best guaranteed return you can get anywhere. Your net worth is everything you own minus everything you owe. With the market in the tank, it is hard to raise the value of what you own, but if you drop what you owe significantly, you can live through a bad year and still increase your net worth.

Take advantage of your opportunities

When times get bad, too many people believe there is nothing to do, and so they do nothing. That’s not going to help. Whether it is refinancing your mortgage now that rates are down again, finding a high-yield savings account to do a bit better than your brokerage money-market, or purchasing that brand-name stock at levels you’ve always dreamed of, keep moving forward. If you like some ideas — such as using an Internet savings account — but are uncomfortable because you haven’t done it before, try to educate yourself to the point where you are comfortable making the move.

Plan for the worst

If 2008 taught us anything, it’s that we’re all living close to the financial fault line, and we’re not that far removed from any massive quake. Whether it’s the potential for workplace cuts or just safeguarding against a health emergency, examine your situation and make a disaster plan. Try to give yourself a road map to recovery, what you will do if you wake up one day in 2009 to find that you have to start over.

Save your pay raise, if you get one

If you are making ends meet now, you can use some or all of tomorrow’s pay raise to inflate an emergency fund, pay down debt, build your retirement plan, add to your employee stock ownership plan or bolster your holdings in a favorite stock or mutual fund. Your household current comfort level will be unchanged — so you won’t feel deprived — but your future standard of living will improve dramatically for the effort.

Keep your buyer’s resistance up

Aside from scaling back for the holidays, many people have told me how they have become better shoppers this year, trying to get the most for their money and refusing to spend it on bad deals when they think there is something better around the corner.

If you picked up improved shopping or buying habits in 2008 — one of my friends recently told me of the miles he walked at the mall, saving big bucks on his holiday shopping when in the past he would have made his purchases at the first store that had the right things in stock — don’t let them slide if/when the prolonged downturn starts to dull your sense of pain.

Increase your charitable contributions

There is a joy that comes from giving some of your money away; don’t miss out on that just because times have you feeling that money is tight. It has been a tough year for charities, but you can help; if you can’t afford monetary donations, consider volunteering more time and giving away possessions you no longer need or use.

Keep money’s place in your life in perspective

You could spend every waking minute following, measuring and tinkering with your investment portfolio. That’s not always time well spent, especially in markets with scary volatility. Investment portfolios based on sound plans don’t require minute-by-minute fascination, and your family and community would definitely benefit from your increased available time and decreased stress level.

by Chuck Jaffe

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2 Responses to “How To Make a Solid Financial Plan For 2009”

  1. centered2 said

    Good post. WHERE did you post it from? I am here all night because you two are gone and your dog is in a serious need of a bath! I have never known a dog to pass SO much gas, are you sure she isn’t like sick or something? I brought James with me and he is wanting to sleep with the dog, I hope he wets the dogs bed. LOL

    Like

  2. emmanuel said

    i wanna know more about this site.

    Like

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