So it looks like it won’t be long before we see the Dow Jones Industrial Average hitting 8,000 which is where it was 6 years ago.
Now’s the time to panic right? Sell all my stocks? Ummmm, no.
First of all, if you are not investing for a time period of 3 years or more you shouldn’t be playing the stock market in the first place. There’s not enough time for you to outweigh the risk in the event that the market goes down.
Historically, the stock market has averaged 11% returns over the last 100 years. It goes up, it goes down. But even in times of heavy volitilty, downturns have not lasted for more than a few years.
So what’s there to do? How do you weather the storm?
For those of you who have been putting off getting your financial house in order, you are running out of time! Its time to get serious, get on a plan and possibly get crazy!
The best, easiest plan to understand I’ve come across was developed by Dave Ramsey. He is a financial author who has his own TV show and radio show. Check it out if you have the time.
This is my take on his original list.
- 1. Get on a budget NOW. (On the last day of every month plan for the next month. Do this by writing your monthly take home amount at the top of the page. Then spend all of that money on paper, starting with food, shelter, clothing, etc.).
- Find $1,000 to put on the side as an emergency fund. (Sell stuff, work an extra few hours a day at work or go in on the weekend. It’s not forever, just until you get yourself set up.)
- Pay off all debts except the house (if you’re a home owner). Write down all your debts smallest to largest and go after the smallest one first. Once that’s done go after the next largest one until they are all gone.
- Build your emergency fund to be 3 – 6 months of expenses for your family. It’s expenses so it should be less than your gross monthly income.
- Save at least 10% down to purchase a home. Your monthly payment (including taxes, insurance, maintenance fees, etc.) should NOT exceed 1/3 of your GROSS take home pay.
- Put 15% of your gross income into tax free or tax deferred accounts (IRAs, 401Ks)
- Put aside money for kids college (529c, or ESA).
- Either pay off your house or invest for the future.
By doing this you will not care whether the stock market goes up or down because you’ll be moving forward with money instead of being held back by debt payments. It’s a freeing feeling to be in control of your destiny and totally worth doing.
