Interest rates, cost-of-living pressures, global conflicts, share market ups and downs. It can feel like there’s always something happening in the world that gives us a reason to worry about money.
And when the headlines are full of uncertainty, it’s natural to start questioning your financial decisions. Should you be saving more? Investing less? Moving your money somewhere safer? Or simply sitting tight and hoping things settle down?
The problem is, there’s rarely a time when everything feels completely certain. Markets change, economies go through cycles and unexpected events are part of life.
The good news is that you don’t need to predict what’s going to happen next to make sensible financial decisions.
While you can’t control what’s happening in the economy, there are plenty of things you can control when it comes to your own money. And sometimes, the best thing you can do is stick with the plan you’ve already made.
Don’t make financial decisions based on the headlines
When share markets fall or economic conditions look worrying, it can be tempting to do something. Anything, really, that makes you feel like you’re protecting your money.
For some people, that means selling investments. For others, it’s moving money into cash, stopping regular contributions or putting financial plans on hold until things improve.
But making financial decisions based on what’s happening in the news isn’t always the best approach.
Markets naturally experience periods of volatility, and short-term movements don’t necessarily tell us much about where they’ll be in five, 10 or 20 years.
Trying to time the market by selling when things look bad and buying again when conditions improve is also incredibly difficult. You risk selling after prices have already fallen and missing out when markets recover.
That’s not to say you should ignore what’s happening around you. It’s simply about keeping things in perspective.
If you’re investing for the long term and your circumstances haven’t changed, a few weeks or months of unsettling headlines might not be a reason to overhaul your strategy.
Sometimes, doing nothing is a deliberate financial decision.
Focus on what you can control
You can’t control inflation, interest rates or what happens in global markets. But you can take steps to put yourself in a stronger financial position.
And often, it’s the relatively simple things that make the biggest difference.
Start by looking at your everyday finances. Do you know where your money is going each month? Are there expenses you could reduce? Are you comfortable with how much you’re saving?
It’s also worth reviewing your debt, particularly if higher repayments are putting pressure on your budget. Understanding your options and making sure your borrowing arrangements still suit your circumstances can help relieve some of that pressure.
Having appropriate insurance is another important consideration. While insurance won’t protect you from market volatility, it can help protect your finances if illness, injury or another unexpected event affects your ability to earn an income.
And if you have investments or superannuation, it’s worth checking that they’re still aligned with your goals and the level of risk you’re comfortable taking.
None of this necessarily means making major changes. Sometimes, a few small adjustments can help you feel much more confident about your financial position.
Go back to your financial goals
When there’s a lot of noise about the economy, it’s easy to lose sight of what you’re actually working towards.
But your financial decisions should be guided by your own goals, not what’s happening in the headlines.
Are you saving for your first home? Building an investment portfolio? Planning to retire in the next few years? Or hoping to help your children financially?
Each of these goals comes with different considerations, particularly when it comes to how long you have to achieve them.
For example, money you’re planning to use for a house deposit in 12 months generally needs a different approach to money you’re investing for retirement in 20 years.
If you’ll need access to the money soon, protecting it from significant short-term losses may be more important than chasing higher returns.
On the other hand, if you’re investing over several decades, you may have more time to ride out market fluctuations, depending on your circumstances and tolerance for risk.
It’s also worth asking whether your goals have actually changed.
If they haven’t, and your financial strategy was designed with those goals in mind, you may not need to do anything differently.
Give yourself some financial breathing room
One of the best ways to manage uncertainty is to make sure you’ve got some flexibility in your finances.
That means having a bit of breathing room if something unexpected happens, whether it’s an expensive home repair, a change in employment or a sudden increase in living costs.
An emergency fund is a good place to start. Having money set aside in an accessible account can help you cover unexpected expenses without needing to sell investments or rely on credit.
It’s also worth thinking about how much you’ve committed to financially.
If your budget is already stretched, taking on additional debt or locking yourself into large ongoing expenses could leave you with fewer options if your circumstances change.
For investors, diversification is another way to manage risk. Spreading your investments across different asset classes, industries and markets can help reduce your reliance on any single investment performing well.
Of course, there’s a balance to be found. Keeping too much money in cash over the long term can mean missing out on potential investment growth, while investing money you might need at short notice can leave you exposed to market movements.
The right balance will depend on your goals, financial commitments and how much flexibility you need.
When should you actually change your strategy?
Staying the course doesn’t mean sticking with the same financial strategy forever.
There are plenty of good reasons to review your approach, particularly when something changes in your own life.
Perhaps you’ve changed jobs or your income has dropped. Maybe you’re approaching retirement and need to think differently about how your money is invested.
You might have taken on a larger mortgage, started a family, received an inheritance or decided to help your children buy their first home.
Even a change in how comfortable you feel about investment risk can be a reason to revisit your strategy.
The important thing is understanding why you’re making a change.
There’s a big difference between adjusting your investments because you’re retiring in two years and selling them because the share market had a bad week.
A good financial strategy should be reviewed regularly and adjusted when your circumstances or goals change. But it shouldn’t need to be completely rewritten every time there’s bad economic news.
Why having a financial plan helps
It’s much easier to make financial decisions when you know what you’re working towards and have a plan for getting there.
Rather than reacting to each new economic development, a financial plan gives you something to come back to when things feel uncertain.
It can help you understand how your money is invested, why particular decisions have been made and what different economic conditions could mean for your financial future.
For example, what happens if interest rates rise? What if investment returns are lower than expected for a few years? What if you need to retire earlier than planned?
Considering these possibilities in advance can help you make more informed decisions if they become a reality.
It’s also where professional financial advice can make a difference.
Having someone who understands your broader financial position can help you work through your options, identify risks you might not have considered and decide whether any changes are genuinely needed.
Sometimes, that means making adjustments. Other times, it’s simply having the confidence to stay on track.
You don’t need to predict the future to prepare for it
There will always be something happening in the world that creates uncertainty about money.
Interest rates will rise and fall. Markets will have good years and bad years. Governments will change policies, and unexpected events will continue to happen.
Waiting for everything to settle down before making financial decisions could mean waiting a very long time.
Instead, focus on the things you can control. Know what you’re working towards, give yourself some financial flexibility and make sure your strategy continues to suit your circumstances.
At Wealth Architects, we help our clients build financial strategies designed for the long term, while allowing room for life to change along the way.
If you’re feeling uncertain about your finances or wondering whether your current approach is still right for you, get in touch with our team. We can help you review where you stand and work out what, if anything, needs to change.
Disclaimer: This article is for general information purposes only and does not constitute financial, tax or legal advice. Please speak with a qualified financial adviser before making any decisions about your financial situation or investment strategy.