Welcome To The Adjustment Club

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Many of us are used to a certain lifestyle. Quite frankly, we balk at the idea of certain products, services or even a change in the way we used to do things.

Generally, if one moves from limited resources to what some believe to be "unlimited" resources (although there is no such thing), it's so easy to adjust one's lifestyle from the "limited" to the "unlimited". Yet for some, it's not just hard, it's downright painful to adjust the other way - from what some thought was "unlimited" to moderation or budgeting.

Well, the world has changed. "Unlimited" does not exist. And "limited" is where it is at. So let me introduce you to the "Adjustment Club". Here's how it works.

First, all the people in the world are members. No one singled you out. The world underwent a radical shift. Like an earthquake, we are still feeling the aftershocks. Like a hurricane, some countries still continue to be hit, while others (like Jamaica) are feeling the outer bands hoping to be spared a direct hit. You get the picture. So we are all in this "Adjustment Club"

Second, we are all adjusting to the same relative place. That place is survival in the short term, and sustainability in the long term. As long as the markets remain volatile, and until the various global stimulus plans kick in all over the world to get the global economy growing again, all of us are living in a heightened state of uncertainty that was imposed on the majority of us. So, we are all heading to the same level of adjustment - survival in the short term, sustainability in the long term

Third, the amount of adjustment does depend on your particular circumstances. So, if you are super conservative like I am, I have relatively little adjustment to do. If you have always been seized with the importance of money management, then you have little adjustment to do. If you have always budgeted, and are fairly committed to your budget, then you have very little adjustments to do. However, if you are more of a risk taker, was never interested in money management, or have a generous budget for your expenses etc., you have more of an adjustment to do because you have to accept that all these factors are critical for the short term and the long term, and then you have to learn how to do them, and then you have to be committed to doing them. If money management and conservatism is not your thing, or does not come naturally to you, please remember that we are all in this adjustment club. It's just something we all must do.

Fourth, you can ease the pain of adjustment and speed up the time it takes to adjust. We know what the external environment is like, and how quickly things are changing. We know nothing is certain but uncertainty. To waste time being upset and frustrated about things you have no control over robs you of precious time to do more productive things to ease your adjustment.

A few adjustment basics:

• Priority 1: Develop a sizable Emergency Savings Fund (not with an Investment Product)

• Quickly develop a budget if you don't have one, and adjust your budget if you do have one. Be realistic - so reduce inflows and increase expenses for budgetary purposes. Don't forget contingencies. If budgeting is difficult for you, seek help if you need to.

• Commit to managing and reducing your expenses. What can you do with less of? What can you give up all together? All members of the Adjustment Club are sacrificing something. Some members are sacrificing much more than others. What are you willing to sacrifice?

• Avoid taking on debt if you can, manage what you have. If you can, pay down the higher interest rate debt first. But don't eliminate your savings or your retirement funds to pay down debt.
  

• Ensure you are as productive at work as you possibly can be. That way you are more likely to be viewed as a valuable member of the team which is likely to make management think twice if and when redundancies happen

• If you are made redundant, or volunteer for redundancies (like some programs offered by some companies), do not squander your redundancy payment. You do not know when you will have a steady flow of income again, and monthly obligations don't go on a holiday because you are unemployed. Take your redundancy payment and place it is a solid, conservative deposit-taking licensed JDIC insured (FDIC insured if you are in the US) financial institution - i.e. in a savings account not investment - until you find the best method to allocate it. It not not prudent to use all your redundancy for any investment - whether an investment product or a business. If you are being sold a financial product, and you are not sure if it is an investment, ask for clarification and get a second opinion. The absolute worst time to speculate or take risks is with your redundancy payment.
  

• Look for alternative means of supplementing your income - as long as it doesn't interfere with your full time job, conflict with your full time job, and importantly is not prohibited by your full time job. So perhaps you can tutor students, sell your amazing digital photographs, start a blog and monetize it etc. Your options depends on what talents, interests and skills you have.
  

Those are just a few ideas about the basics.

This is no time for any of us in the Adjustment Club to bury our heads in the sand.

It is time to make this adjustment as painless as possible. We didn't ask to be in the Adjustment Club, but here it is and it is not going away. So let's make the best of it.

There was a world before all the excess. It's not like we are adjusting to a completely different reality.

Likewise, there was a world of depression and war, and then war again. So it could be worse. Let's not help it get there. Like good club members, each of us needs to do our own adjustment, and help our fellow club members in theirs.

4 Things You Must Know About Investing

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As promised, I am venturing into some investing basics.

But, wait, before you get excited, I have no hot stock tips.

In fact, that is exactly what this post is about - what you need to know before you listen to other people.

So, although these are just a few basics, here are 4 "must knows", in my humble opinion:

• Saving and Investing are two completely different concepts. Yes, I know I probably sound like a broken record, but after what has happened in the world - both close to home and abroad - I feel like this point must be made again and again: You must save, you do not have to invest. When you invest, you are taking a risk that you could lose your entire principal. That is the reality. And you take that risk in expectation of a higher return than you can get on money you save. On the other hand, when you save, a portion of your saving in a regulated licensed deposit-taking institution is insured to a limit. Some people use the terms "saving" and "investing" interchangeably but in reality they are not. Quick Tip: Given the proliferation of financial products and Ponzi schemes, make sure you get details of what happens to your principal. Just ask. These days, return of principal is just as, if not more important than return on principal.
  

• Your savings, obligations and age matter - a lot! In other words, don't invest until you have a comfortable cushion of savings. Experts say 3-36 months of salary. In this environment of uncertainty in the cost of living and job losses, 3 months worth of savings is far too low in my humble opinion. If you have high expenses and obligations, then you cannot afford to risk money that you could lose (remember, that is what an investment is). Finally, the older you get, the less risk you can afford to take. That makes sense because your potential working years are declining, and you are coming closer to retirement.

• Do not invest in things you do not understand. How many times have people tried to convince you of "a sure thing", and told you "here's a hot tip"? It may very well be, but if the person telling you cannot explain the investment and why it's such a "hot tip" or a "sure thing", then that's grounds to doubt it. And it would be prudent to understand what influences the investment - what external factors are likely to make the investment do well or do badly. No one is expecting you to be an expert, but it's your money - you should be able to evaluate if what the "expert" says makes sense.

• Know Yourself. Believe it or not, this is one of the most critical things about investing - knowing your own risk-tolerance. You may get a great tip, understand what the investment entails, understand that it's an investment (as opposed to savings), but it may just be too risky for you. On the other hand, remember that not all investments carry the same risk, and some - under the right circumstances once you have sufficient savings tucked away - may just be right for you.
  

FREE Online Personal Finance Courses

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Check out this article in today's Wall Street Journal about the sharp increase in online personal finance courses: A Boost in Online Money Management.

What's the trend? People are arming themselves with knowledge to make informed decisions. Even if you use a financial adviser, it would be prudent to ensure that you have enough of your own knowledge to evaluate if his or her recommendations are appropriate for you, your particular financial situation, your goals, and your risk tolerance which determines not only investing, but also how much money you feel is a comfortable cushion of savings in the current environment.

There are many FREE and paid services you can enjoy from the comfort of your own home!

From the article: "Popular courses included those on reducing spending, and ways of saving and creating a priority spending plan. "

With a little due diligence to ensure the information is credible, do yourself a huge favor and check out some FREE or paid personal finance courses!

What's a small investment of your time if it saves or makes you money for your own financial security?

Plan to Take Action in 2009

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I remember watching the opening bell on the first day of trading. Trading is a speculative activity, involving risk with the hope of reward.

And here was perhaps the most famous personal finance expert/author, Suze Orman - someone who counsels about money management, the virtues of saving, the importance of managing debt, and taking risks only when you have evaluated them, understand them and can do so depending on your age and stage in life - doing the honors.

It was a very interesting note to start the year. And to me it signaled that this should be the year of financial literacy, and greater risk/reward determination, and ultimately responsibility.

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