The stock market had a nice increase over the first four months of the year. But now it’s been going down for May and June. Maybe it’s due to the Greek debt problem, or Spain’s bank bailout, or slow U.S. job growth. It’s enough to make you go crazy. But should it?
Heck no! None of us have control over these things. Yet we focus on them and create stress for ourselves. It’s a distraction from focusing on what we can control in our financial lives.
The first step to end the craziness is to set a few life goals, such as buy a home or travel the world, or when to retire. Once you set some goals, it’s easy to figure out how to get there. Not having financial goals is sort of like taking a road trip without deciding where you’re going.
How stressful would it be to jump on the freeway without knowing what city you were going to? You wouldn’t know how long you’d be travelling, nor would you know how much money to take, or if you have time to check out some sights along the way.
Not having financial goals causes the same uncertainty as travelling without a destination. You don’t know if you’re saving enough, when you can retire, or what standard of living you’ll be able to afford in retirement.
Folks that don’t set goals default to the goal of making as much money as possible. This leads to stock market watching. Because the only goal is to make as much money as possible; an increasing market makes them happy, while a down market makes them stressed.
In addition to setting some financial goals, focus on these four things that are well within your control:
• Pay off credit cards every month.
• Save at least 15 percent of your income.
• Don’t try to time the stock market.
• Have a diversified, low cost portfolio.
Don’t feel bad if you don’t know how to do some of these things. I remember starting my first job after college with a mechanical engineering degree (many, many years ago!). During the employee orientation, I had to make all kinds of decisions that I was not prepared to make. Was it better to put money in a 401(k) with pre-tax or after-tax contributions? How much should I contribute? Should I buy long-term disability insurance?
I was not prepared to answer any of these questions. That made me embarrassed; but I shouldn’t have been – and neither should anyone else. Personal finance is not taught in our education system. Very few people take a high school or college course in personal finance or investing.
My goal is to explain all things related to your financial life in a way that is understandable, straight-forward, and hopefully fun. It really isn’t too complicated once you are armed with some basic financial knowledge. Managing money is just a matter of someone taking the time to lay out the facts in a simple, logical format.
I look forward to writing this personal finance column to help everyone become a do-it-yourself investor. In the meantime, start thinking about your financial goals and focus on what you can control. If you do that, then you will definitely take the craziness out of your financial life.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone at 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
