One of the things many people are realizing right now is that it is time to have a look at their financial priorities. Whether you are a high net worth individual, or whether you are a little less affluent, a recession is a good time to re-evaluate your personal finance values and take a look at what you are spending your money on.
Last week, I spoke with Stuart Lucas, a wealth manager. Lucas runs a course on wealth management at the University of Chicago’s Booth School of Business. He is also the chairman of Wealth Strategist Network LLC, and the author of the book Wealth. While his main focus is high net worth individuals, the rest of us can learn from his insight. And one of the most interesting things he points out is that a recession has an effect on everyone’s net worth — even millionaires’.
Looking at your core personal finance values
In order to get through a recession with your finances intact, it is important to make some adjustments during these times. “Your investments, your earnings from other sources — a number of your assets — might be taking a hit right now,” Lucas says.
First of all, it is important to consider the things that are likely to most impact your net worth during this time. Lucas points out that how you are doing “depends on the amount of leverage that you have, as well as risk and illiquidity of securities. But leverage is the real problem. If you are leveraged in times of recession, the market can kill you.” This is a good time to re-evaluate how much leverage you have, and the types of securities you have for the future.
You also need to look at your financial priorities and decide what is truly important. “Now is the time to cut some spending and get your overall finances in better shape,” Lucas insists. “Take a hard look at your values and financial priorities. You don’t have to cut your spending across the board. Instead, target the things that you consider more of the fluff. Can you have a nice vacation without going to some super-spiffy resort? How important is a child’s education? Figure out what’s important to you, and trim the things that aren’t as important.”
Personally, that is my favorite bit of advice from Lucas. The idea that you can pick and choose what’s important to you in terms of spending priorities is a very freeing thing. I don’t care much for watching TV, but I love to eat out. I don’t need to sacrifice my dinner at a nice restaurant if I don’t want to — as long as I cut that premium cable package that I don’t care about. So we go to a more basic package, and I can still eat out. You have to decide what’s important, and then cut back on what’s unimportant.
What about you? What’s unimportant in your personal finances?