Happy Monday and Merry Christmas to all of our readers! Unto us a Son has been born! Rejoice! What a great way to celebrate a little baby's birth by honoring Him at Christmas time by spending quality time with family and friends. Gosh…we all have so much to be thankful for in 2013, so be sure to pause. Think. Give glory to the one who has provided it all this Christmas time!
Now back to your regularly scheduled ThreeThriftyGuys article…
2013 has been quite the year. The stock market is up 23% YTD, national home prices are up moderately, unemployment is down moderately (or they'd have us believe), interest rates are still significantly low, and consumer confidence is pretty good. With how much the Fed is pumping into the monetary supply and buying our national debt, you'd hope that we'd have some “good signs” of stability or recover. However, with so much intervention and manipulation of the markets, now might be a good time to evaluate where you want your risks to be in 2014.
Have you ever experienced a severe storm before? A snowfall that dumped 24″ of snow, a hurricane that came in a wiped out entire communities, or a hail storm that flattened your crops? It always seems the day or days preceding the storm are so calm, and mild. You often think to yourself, “How could a storm be coming tomorrow? Today is so beautiful. The weatherman has to be wrong!“
As we approach 2014, now might be the time to take a good look at your finances. Sit down. Spread out all your bills/debts. Take a hard look at your overall financial picture, and see how much risk you can tolerate. After all, it's always best to prepare for a storm before it and not during it!
…it's always best to prepare for a storm before it and not during it!
Here are a few ideas to get ya started.
- Rebalance your portfolio – with how well the stock market has performed this year, then now is the time to evaluate your risk tolerance and rebalance your portfolio. Consider diversifying more of your stocks into bonds/cash, which should be according to how much risk you feel comfortable with. As a point of reference, consider how you'd feel if your 401k lost 50% of it's value, which was similar to the crisis of 2008-09.
- Reduce fixed expenses – risk shouldn't only be viewed in terms of your stock portfolio, but also consider how your fixed expenses are a liability. A liability that becomes extremely burdensome during tough financial times. Consider separating your fixed expenses from your regular expenses, and work to reduce these commitments. In my mind, I always consider these expenses to be like shackles in a prison. A burden on your financial freedom. Break free!
- Save up for major repairs or purchases – in this point I'm speaking especially personally. My family and I are actively saving to pay for our kids schooling for next year and to paint our house. These expenses are going to require a lot of cash, and there are significant discounts for paying up front. This again is a great reminder to have a large sum of cash on hand!
- Start a new side job to supplement your primary income – are you 100% reliant on one stream of income from [caption id="attachment_958" align="alignright" width="300"] Passive Income Streams[/caption]
your regular 40 hour a week job? Have you thought about how long you could survive on your emergency fund if your primary income stream was lost? Think about this as a significant financial risk and look to diversify your income streams. Consider reading my previous articles on “Retirement planning – options for multiple streams of income“,”How to Stop Living Paycheck to Paycheck – Passive Income, and “How to Create Your Own Pension“, to diversify your income streams.
- Get busy living and take care of your health today – each of us has a fixed numbers of days on this earth. On Friday night we had a party with our neighbor friend, Chuck, who had fallen off a ladder 3 years ago. From that accident he walks with significant limp, pain in his legs, and curvature of the spine. He talked so personally about how just four years ago he could do everything, but this accident significantly put a set back on his mobility. It is a great reminder of the fragility of life, and that “we aren't Superman”. Look at how your can improve your health in 2014 by challenge yourself to lower your cholesterol, lose weight, or go the whole year without cavities.
So there are a few ideas for reducing risk in 2014, but I'd love to hear from some of our readers on how they are reducing their liabilities/risk!