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Are You Ready for the Next Economic Downturn? Survive With These 4 Habits

Insights & Ideas Team •  July 6, 2016 | Your Finances

In periods of economic hardship, it’s not uncommon for companies to make changes. They might cut staff, close offices or revamp a product or service.

Like a company, you might also look for ways to manage through personally difficult times. Cut spending, learn a new skill or find some other means of getting by. What if instead you took cues from companies that not only survived but thrived when the going got tough, without making any changes at all?

In their bestselling book Great by Choice, authors Jim Collins and Morten T. Hansen identified several characteristics of companies that thrived through years of economic uncertainty and chaos. These companies performed leaps and bounds better than others in the same situations.

Leaders of these companies were neither visionaries nor risk-takers. Rather, they practiced habits that could, interestingly, work for you at home. Try applying them to your financial planning before the next economic downturn arrives.

Fanatic Discipline

The authors uncovered a characteristic they termed “fanatic discipline,” defined as focusing with extreme consistency of action. Great companies “don’t overreact to events, succumb to the herd or leap for alluring—but irrelevant—opportunities.”

Making it work for you: You’re far less likely to overreact to bad economic news if you’ve been disciplined about preparing for it. Do you have a financial plan in place that appropriately diversifies your assets? Have you set money aside in case of job loss or other disruption to steady income and planned for short-, medium- and long-term goals?

Taking these steps can prevent you from making illogical decisions in times of crisis. You might be surprised at some of the irrational behaviors people exhibit when stress abounds and money is involved.

The 2016 Northwestern Mutual Planning and Progress Study found 85 percent of Americans feel financial anxiety; among the top fears were having a financial emergency (38 percent) or unplanned medical expenses (34 percent).

The purpose of a financial plan is to prepare you for risks and opportunities. A comprehensive plan is like a road map for meeting your personal goals for the short term, long term and all the life you live in between. It will address areas such as savings and investments, insurance to cover unforeseen events that could derail your plan, and cash flow during retirement. It accounts for how you might manage future costs, such as a college education or a loved one’s long-term care. It looks at all areas of personal financial management.

Empirical Creativity

Company leaders researched in the book made good decisions by applying “empirical creativity.” These leaders understood the need for creativity, or innovative thinking, backed by empirical evidence, not their emotions or opinions of others.

Creating a Solid Financial Plan: Your Guide to Money ManagementMaking it work for you: Acquire at least a basic understanding of financial planning.

The more you know about financial planning, the more likely you will make smart financial decisions relevant to your personal goals. This is where evidence and creativity enter the picture.

The knowledge of what works and what has been shown to fail can become evidence for building a sound financial plan. Your personal goals drive the creative part. The way you save for a house, plan a vacation or invest for retirement might require extra ingenuity and resourcefulness. 

Keep a lid on emotions. Take to heart the fine print warning that past performance is no guarantee of future results. This is true for any investments within your plan, whether individual stocks, mutual funds, real estate or sports memorabilia collections.

Productive Paranoia

Successful companies studied recognize that they operate in uncertain environments. They exhibit a characteristic the authors termed “productive paranoia,” acting as if the next disaster was right around the corner, even during the good times.

Making it work for you: If you lost your job tomorrow, where would the money you need to live on come from? What if you became disabled or your spouse died unexpectedly? Do you have insurance to help you manage what could be significant expenses? Become productively paranoid. Act like you will experience income loss, and put a comprehensive financial plan in place. It not only lessens the likelihood that you will overreact to bad economic news, it also can help you thrive.

“Even in an uncertain economic climate, financial planning leads to better outcomes for those who take the time and make the effort to plan,” according to a survey in 2013 by the Certified Financial Planner Board of Standards, Inc. and the Consumer Federation of America.

The findings showed that people who plan financially are more confident in their financial decision-making, can save more money and are happier with their progress in meeting savings goals than people who don’t plan.

You can apply this concept to your career as well. Hone job skills, expand your educational credentials or leadership skills, and stay connected with others in business. Don’t wait until bad times to work on self-improvement.

20-Mile March

The “20-Mile March” was found to be one of the most distinguishing factors between companies that thrived amid chaos and those that floundered or remained stagnant. It refers to companies making steady, measured progress over time versus racing toward goals, exhausting people and resources in the process.

Making it work for you: Steady, measured progress over time is also the right approach to building personal financial security. It’s about behaving like a marathoner, not a sprinter.

Are you looking to pay off debt? Save for a house or higher education? Take a big vacation next year? Identify those goals early. Understand that, with time and discipline, you can reach them.

The concept of running a marathon is behind one of the biggest reasons to start planning for retirement early:  compound interest. It enables your money to grow exponentially. But it doesn’t happen quickly; you need time.

There are other advantages to seeking steady progress over time. You will have more time to correct mistakes. And you might sleep better at night knowing that you’re preparing well.

Greek philosopher Aristotle is credited with having said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” The habits of companies that thrive during periods of economic uncertainty and chaos were built over time. You can do the same.

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