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The 21st Century has been economically atypical, shocking to some and interesting at best. It has been a bit like riding a bobsled down a Catskill mountain slope, scooting up the other side, going off a steep cliff, and landing softly in a haystack.

It would be understandable for investors, looking back on the past ten years, to conclude that they would be just as well off to bury their extra cash in jars in the backyard or under the mattress. However, that would be exactly the wrong approach. Here are a few lessons to take away from the last decade:

  • Have emergency funds reserved to cover living expenses for six months up to a year. Cash reserves can help you ride out a job loss, get through a business slump, or avoid having to take money out of investments when their value has declined.
  • Avoid consumer debt. If you use credit cards, be sure to pay them off in full monthly. Plan and save in advance so that you can make purchases in cash. Credit terms are changing and if you carry debt, you are making the banks rich rather than yourself. Do you know how long it will take you to pay down a credit card balance of just $3,000 at 15.24% paying the minimum payment of $69 monthly? 67 months and your total payout would be $4,623. You actually will pay the credit card company 54.1% over time.
  • Budgeting is not a dirty word and neither is a personal income and expense statement. Tracking your spending and creating a plan for how you will spend your income is a necessary survival skill in the 21st century. To gain and maintain financial independence, it is imperative that we manage our spending. There are numerous free tools available, such as and to help you.
  • Understand how you and money work together. Exploring your money history and learning to identify your unconscious beliefs about money can change your financial behaviors forever. It is crucial to gaining control of your finances and becoming comfortable using money as the valuable tool it is.
  • A house is a home, not an investment. Don’t buy more home than you can afford, and don’t buy a home without a down payment. Average home appreciation over a 30 year period has been 3-4% annually, not much more than a savings account. This is the real figure when you take into account all the taxes, upkeep, mortgage and interest payments as well as the drain on your cash flow. Real estate doesn’t go up forever, and neither does anything else.
  • Retirement will happen, maybe sooner than you think. Start early and be consistent in investing up to 30 percent of your paycheck into a 401k, IRA or other savings plans. Whether you think you will retire in the traditional sense is irrelevant; medical breakthroughs are keeping us alive longer and we will eventually have to stop working and still be able to support ourselves.
  • Your portfolio value will fluctuate as price declines, even crashes, are a normal part of investing. Be prepared to ride out downturns. Selling in a down market is a big mistake that will cost you dearly. No one can control the market any better than you can control the tide of the oceans. One thing I know for sure: markets go up and markets come down. Invest long-term money (10 years or more) in stock mutual funds so that your money has the possibility to appreciate in value and segment money for shorter-term needs with more preservation in mind.
  • Manage market fluctuation with a properly allocated portfolio spreading risk over many asset classes. Diversification doesn’t mean having money in different banks, or with different brokers. It’s about having a good balance of mutual funds that invest in US and international stocks, US and international bonds, real estate investment trusts, commodities, market neutral funds, treasury inflation-protected securities, and high yield bonds. If this seems overwhelming, perhaps you would do well to find a trusted advisor to help you navigate all the options.
  • Learn to live on 70% of your income. While this may seem unreasonable for anyone who is just starting out, raising a family on a limited budget, or getting by from month to month, it certainly is necessary to become fiscally responsible. The most valuable financial habit anyone can develop is to save something for the future. You never know when you will need it.

Perhaps the most important financial strategy for the 21st Century may be to take a lesson from The Greatest Generation—live a simple, frugal life, and stash some cash for a rainy day. Regardless of where you are right now, you can create a plan to get you on the road to becoming financially self-sufficient.

Beth Jones, RLP® is a Registered Life Planner and Financial Consultant with Third Eye Associates, Ltd, a Registered Investment Adviser located at 38 Spring Lake Road in Red Hook, NY. She can be reached at 845-752-2216 or Securities offered through Commonwealth Financial Network, Member FINRA/SIPC.

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