These are one of those unique times where if you’re a GenXer (1965-1979), this isn’t the first time you have seen a market take a sharp downturn. You experienced this about 8 years ago with the internet bust. Many of you have college education degrees, MBAs, and you have good jobs, but you’re simply asking yourself will I be able to make any money in the stock market in the long haul? Is the economy going to get worse? How do I balance college education savings and think about retirement. Most of all, you are beginning to guess where the bottom of the market is going to be just like you are playing a video game. Unfortunately, it’s not a game, so here’s my short list for things for GenXers to be thinking about with their money.
1. Make sure that you get a handle on your day-to-day finances
The thing that I see more than anything is that most GenXers bought homes where they went 90% to 100% loan to value and right now you are in a position where your month to month bills feel out of control. As the CEO of your family finances, you are beginning to realize your day-to-day finances are not in order. Specifically, understanding your debt to income ratio, your overall income statement, and your overall balance sheet. Now you are asking what can you do to save more money. You are not in a position where your investments can take care of you, so your management of your income statement is crucial to short term survival. What it really will mean is that you’ve got to save more money, which means learning how to clip coupons, limit your credit card use, and buy only what you need versus what you want. As your CFO, it is recommended that you begin closely tracking your next 6 months of expenses.
2. Ensure that you build up your emergency reserve
You should protect yourself from what happens if you’re out of work. Specifically, what happens is you decide to leave your job, or your job decides to leave you. What will you do? Do you have insurances in place? Do you have enough cash to hold you over for three months or six months? What will you do in order to make sure that if you are unemployed that you’ve got enough money to carry your household?
Beyond that, you really need at least 3 months in a safe cash reserve (6 months would be optimal now) in case you have time where you are out of work. Or, with the brand new big house you bought what happens if the house has a major expenditure.
3. Begin prioritizing your retirement savings
One of the questions I hear from GenXers is should I take money out of my 401(k) plan right now, or should I stop contributing to my 401(k)? The 401(k), especially if your company matches, is still one of the most powerful vehicles that you’ve got from an investment perspective with tax breaks. The ability to have pre-tax deductions and the ability to get free money from your company is an investment that’s going to be hard to beat some other investment opportunity as long as you plan to stay with your company for enough time to collect the match. The 401(k) still gives you the best value to use the power of compounding of money over a long term time frame. In general, I wouldn’t put your kids college education over your retirement in terms of priority although each family situation is unique. Please don’t stop the 401(k) contributions.
4. What should be my balance from an investment perspective?
I always stress that you should have a comprehensive financial plan. Most people in their 30s should have a high percentage of their money in the stock market. It will really depend at the end of the day on your overall risk tolerance, investment objectives, time frames, and tax brackets, etc. but that’s just a good general rule of thumb of what to do. It’s important at this time that you don’t sit there and try and time the market, but it’s also important that you manage your money and not just buy and hold and set it and forget it.
If you are a GenXer, realize that you more than any other generation own a business. . . your family finances. It’s important to get your day-to-day finances in order because your income statement ultimately drives your balance sheet. Your balance sheet will drive your ultimate financial security. Past performances are not predictive of future results. Regular investing does not ensure a profit or protect against loss in a declining market, of course.
Securities and Investment Advisory Services offered through NFP Advisor Services, LLC (NFPAS), Member FINRA/SIPC. Oxygen Financial is not affiliated with NFPAS. NFPAS does not provide tax or legal advice. This site is published for residents of the United States only. Registered Representatives and Investment Advisor Representatives of NFP Advisor Services, LLC (NFPAS) may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFPAS Compliance Department at 512-697-6000. PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. NFP Advisor Services, LLC makes no representation as to the completeness or accuracy of information provided at these web sites. Nor is NFP Advisor Services, LLC liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to.