If you’ve watched much TV lately or listened to the radio, you’ve probably heard some of Fidelity’s new ads that say, “Let us help you take control over your personal economy.” Their website explains, “Your Personal Economy includes the things you care about — your kids, your family, your retirement, your career. We can help you take control of your personal economy and the things that are important to you.” I have to admit that while I hate most personal finance advertising, I actually like this one. Not because I love Fidelity, or because I think that they can somehow save people from financial problems, or because it’s a particularly cute ad, but because they’ve hit on something which really resonates with me: Common sense.
A lot of us spend too much time worrying about the global and national economies. While it’s wise to keep up with what’s going on in the larger financial world so that you can adjust your plans accordingly, the economy you have the most control over is your personal economy. Even while the national and global economy is going down the drain, it’s still possible for your personal economy to flourish.
Your personal economy consists of your savings, your employment/unemployment prospects, your debt load, your frugality, and your spending patterns. Like a global economy, you might even have some trading going on, or “import” and “export” of goods and services. All of these are things which you have some degree of control over. You can’t control what governments do, or what big businesses will do so while it’s good to be aware, spending time fretting about it isn’t productive. It’s wiser to pay attention to your personal economy. If your personal economy is thriving, what happens in the larger world matters much less to you.
Take employment for example. You cannot control the unemployment rate, or whether the business you work for will institute layoffs. However, you can control your productivity and value as a worker, meaning that you might be able to avoid a layoff. If that isn’t possible, you can control the amount of money you have saved to see you through a period of unemployment. Taking even more control, you can take on part time work or start a side business to bring in extra income. You can also take classes and keep up with developments in your field so that you are more competitive in the marketplace. You can’t control the job market, but you can control your response to it and your value within it.
Retirement is another example. You can’t control what the government will do with Social Security, and you can’t control it if a company disbands its pension program. But you can control how much you save outside of those programs so that you have a fallback position if the other options flame out. Here are some more examples:
You can’t control interest rates, but if you carry very little debt (or if your debt is all fixed-rate), interest rates don’t matter as much to you.
You can’t control the price of food, but you can control your use of coupons, buying of store brands, shopping the sales, and planting a small garden to help defray the rising costs.
You can’t control the rising costs of cable TV, cell phone plans, and the like, but you can decide to limit your TV to a basic package (or none) and you can buy cheaper phones and pay-as-you-go plans.
You can’t control the housing market, but you can limit your housing to that which can realistically afford, and not upgrading it to the point where it’s impossible to sell because it’s too much for the neighborhood. You can also control whether you buy a house at all, or admit that renting is the best option for you. You can control your purchase of a home as a place to live and enjoy, not as a risky investment to flip.
Debt and Cost Cutting
The government has the option to print more money when they face a big debt and lay off people to make up the difference, but you can’t do that. You can, however, find ways to pay it down, even if a little at a time. If you need to raise money, you can’t raid Fort Knox, but you can have a yard sale, put some stuff on Craigslist, or take on part time or freelance work. You can also do your best to avoid debt in the first place. If you need to cut costs, you can find ways to save on everything you buy, eliminate all unnecessary purchases, do more DIY, and find ways to trade and barter for what you need.
You can control your response to almost everything the national and global economies throw at you if you’re paying attention to your personal economy. Here are some suggestions to make sure your personal economy is as healthy as it can be.
- Save up a good-sized emergency fund that will cover you in the event of job loss or other disasters.
- Make sure you’re properly insured against the risks you face.
- Keep your employment prospects healthy by being a valuable worker and keeping up to date with changes in your field.
- Earn extra income if necessary by taking on another job, starting a side business, or finding other ways to bring in money.
- Limit your debt, or eliminate it altogether.
- Practice frugal behaviors such as DIY, gardening, shopping the sales, comparison shopping, couponing, and following the old adage, “Use it up, wear it out, make it do, or do without.”
- Limit frivolous spending. Limit eating out, buying unnecessary items, and keeping up with the Joneses.
- Learn all you can about personal finance and make educated decisions when it comes to investing, home buying, and banking.
A healthy personal economy won’t protect you from everything, of course, but it does serve two purposes. First, you’ll spend a lot less time worrying about the outside stuff that you can’t control and more time taking positive actions to improve your situation. Second, while outside events may cause you some hardships, they are far less likely to completely derail your life and long term plans. So Fidelity is right. Paying attention to your personal economy is the best way to prepare financially.
(Photo courtesy of warrenski)