Things are looking up with the economy as more economic indicators are turning positive. In the past couple of weeks, we have seen positive signs from unemployment, housing starts, consumer spending, and of course the stock market. But, how can you have a financial recovery?
But, there are a few ways that you can trip yourself up and screw up your own personal financial recovery. It does not have to be that way though. You can avoid these stumbling blocks and continue your own recovery.
Three Ways to Ruin Your Financial Recovery
Not Being in the Stock Market
No matter how much we wish we could, the truth of the matter is that we simply cannot time the stock market. In order to get out at precisely at the right time when stocks are down and back in when they are rising again, investors must correctly time the market twice.
According to a study conducted by Hepburn Capital, if you had managed to miss the 20 best days in the stock market between 1983 and 2003 your returns would have been cut in half. This is just one of many studies that have shown how missing specific days and not invested in the market can have devastating effects on your investment portfolio.
Not Continuing to Save Enough
Studies have shown that American salaries have remained constant for the past eighteen months without a pay raise for workers on average. The real problem comes in when consumer spending is on the rise like it has started to move up recently.
So, where does the money come from in order to increase consumer spending if workers’ salaries are remaining the same? Americans are increasing their spending by reducing the amount of money they are saving. They are not keeping a three to six month fully funded emergency fund in place. Many people’s savings are being used instead.
Participating in Lifestyle Inflation
Like a decrease in the savings rate, there is a real danger of people seeing lifestyle inflation creep back into their lives. Many people were doing well by keeping their lifestyle and costs under control with austerity measures and budgeting during the recent recession.
Lifestyle inflation happens when people receive extra money or income in their budget and do not save that money. Instead, you may spend money by increasing the type of lifestyle that you live. Are you buying a new, bigger, more luxurious car? Are you back to going out to eat more and more? Have you slacked off staying strictly to your family’s monthly written budget?
Things are looking better in the economy, slowly but surely. Like my old high school football coach used to say, “Don’t screw it up”. There are so many ways that the market can trip us up on its own. We should not add to our problem by compounding them with these three ways that we can ruin our own financial recovery.
What about you? Did you ride out the stock market’s ups and downs during the last recession? Or, did you pull your money out of the market?