Last Updated: August 31, 2009
The recession is not over yet. However, there are signs that the economy is starting to turn. Housing prices are rising. Unemployment claims seem to be falling. Even jewelry store, Tiffany & Co., just reported a profit.
No one knows when the recession will really end. But one thing seems certain. If you haven't done so, it might be time to evaluate your financial plan and consider what, if anything, needs to be updated and tweaked in the post-2009 recessionary world.
"This post-recessionary period and the fear that we have all felt during the recession can serve as an opportunity to take a different approach in the future both towards our planning efforts as well as our savings and investment strategies," said FPA member, Lisa A.K. Kirchenbauer, CFP®, RLP®, president of Omega Wealth Management.
So what are some of those approaches?
Time for Creative Solutions
"As we begin to see some light at the end of the tunnel, it's easy to think that we'll be back to 'normal' soon, our portfolios will have recovered and we'll be on track to meet our financial and life goals," Kirchenbauer said. "The reality is that we are still a long way from being 'on-track.'"
"You will have to come up with more "creative" solutions to meeting your goals because of the recession," said Kirchenbauer. "'Creative' may mean working a little longer or downsizing the house or finding ways to enjoy life now while also spending less," she said. "Sound hard? Not if you take a more conscious approach to your money."
Conscious Planning Is Key
But what is "conscious" planning? According to Kirchenbauer, it means taking a more thoughtful approach to what's most important in your life and then aligning your financial resources to support what's most important. "Some call it financial life planning," she said. But it also means understanding what your relationship is with money and creating a healthy one where your spending is conscious. "This isn't about a 'money diet' or being frugal," she said. "It's about creating a fulfilling life for yourself which is supported by your financial means."
Kirchenbauer also said conscious planning is also about finding what you are good at, what you are passionate about, and making a career out of that. "It may be even more crucial in the future when many of us may decide to, or financially need to, continue bringing in an income longer than we thought we would need to," she said.
Find Your Retirement Life Now
As it may seem well-known by now, Kirchenbauer said the future 'retirement' of baby boomers will be different than their parents. "We do expect to live longer, and the happier and more fulfilling retirement you have, the less likely you will be to overspend and overeat thus hijacking your ability to have a financially comfortable retirement for many years," she said. "If you are in good physical health, why shouldn't you keep working, albeit more flexibly, into your late 60s?" She noted the reason that so many people long to retire soon is because they have delayed the life that they really want to have and/or have pursued a job or career that they do not like. "Retirement is an escape," she said. "It's time to find that 'retirement life' now."
Goals-Based Investing for a More Comfortable Ride
As you begin to contemplate drawing down your investment assets vs. accumulating them, you will need to consider new approaches to investing. "The reality is that many consumers already unconsciously manage their savings along these lines," she said. "Goals-based investing is nothing more than identifying your financial goals, their timelines and importance and then segregating (either mentally or into different accounts) and applying different investment strategies and allocations based on your unique needs."
As an example, she said college education assets that will be needed in four years, should not be invested the same way as your retirement assets that may not be needed for 15 or 20 years. "As a result, you would want to err more towards money market and bond investments than you might with your longer-term retirement money," she said. "Often investors will lump all their investments together, apply an overall asset allocation and hope that they can meet all their goals with this lump sum. It is that kind of approach that is now threatening many college funds, and other short-term goals."
She also noted that now's a good time to reassess your risk tolerance to see whether you are willing to take as much risk as you thought.
No Quick "Rescue"
According to Kirchenbauer, many Americans have relied too heavily on debt and 401(k)s and other investments, including our homes to carry us to our goals. "These assets and what little savings we accumluated may have been doing all the 'heavy-lifting,'" she said. "It's clear now that relying on assets and strategies beyond our control is not the way to reach financial security. It will be important for each of us to take back control through conscious spending and more aggressive saving and investing."
Doing so, she said will come with this benefit: It will feel good to live knowing that you are not relying completely on the whims of the global financial markets to make your dreams come true.
Kirchenbauer also warned against the lure of 'get-rich-quick' schemes that appeal to your desire to 'rescue' your financial situation. "In reality, the downturn was created over a number of years and will take a number of years to fully recover," she said. "This is a great time to remember how we felt as real estate prices climbed and we thought that there was no downside. Don't be fooled. Most wealth is created and preserved through thoughtful, straightforward investment strategies."
If you need help building or tweaking your financial plan, consider hiring a financial planner. Find a financial planner.