Making Financial Adjustments Due To The State of The Economy

by Guest Blogger on 2008-10-1730

I’ve had to rework some of my financial goals to adjust to the current state of the economy.

I had such high hopes for 2008. Back in December 2007, I went ahead and made some goals for the year. Readers and visitors have followed my progress from month to month. I noticed that some goals were met, some were modified, and some are still to be done.

Looking back, I’m surprised about what I’ve accomplished. Usually I tend to give up after just a few months from either lack of planning or neglect. The support I’ve received has been invaluable.

financial goals

Some of My Original Financial Goals for 2008

  • Spending: I’ll be cutting back on eating out to twice a week, including weekends.
  • Investing: We’ll contribute to our retirement funds.
  • Debt: I’d like to pay off my car loan by July 31, 2008. It would be great to retire my car loan before I need to start paying off my student loans.

My Current Financial Goals

  • Spending: No change here — I’m going to continue cutting back on dining out.
  • Investing: We’ll continue to contribute to our retirement funds despite the economic circumstances.
  • Debt: I would like to pay off my car loan by December 31, 2008.

As you can see, I’ve changed my goals somewhat — particularly in the realm of debt management. So what’s up with that? Well, basically 2008 was nothing like I expected it to be.

The Economy In 2008

This year has seen some big changes to the economy. Housing problems, credit cards woes, and stock market fluctuations have topped the headlines.

bear stock market

People who’ve been contributing to their retirement funds are now regularly seeing their portfolios shrink drastically.

Why We’ll Continue to Contribute to Our Retirement Plans

But let’s take a look at the long-term numbers: the average return from the stock market has been 11.69% from 1928 to 2007. Looking at the history of stock market returns, you can see it increasing (with many dips and bumps) overall.

US stock market history

My husband and I have confidence that in the long run it’ll be wise to continue to contribute towards our retirement goals and have our money in different index funds. Given all the financial challenges we’ve faced this year, here are a few things I’ve learned:

  1. Don’t pull money out of your 401(k). You’ll be hit with tax penalties for taking your money out early — unless of course, you’re simply shifting your money into cash equivalents within the same 401k. Still, by taking out your money now, you’ll potentially miss out on the next stock market recovery.
  2. Find the right mix of stocks and bonds for your retirement investments. Stocks historically provide higher returns in the long run, but are volatile. As you get closer and closer to retirement, you should shift more into bonds and other “safer” investments. A simple, helpful tool you can try out is an asset allocation calculator such as this one.
  3. Don’t chase the hottest stock or mutual fund tip. It has been pointed out time and again that index funds outperform actively managed funds. Market Watch made the following observation:
    “Actively managed funds siphon off too much in management fees, even though 75% to 85% of them fail to beat their market indexes every year.”

An Obstacle to Paying Off My Car Loan

After moving to a different state for a job that I was excited for, things didn’t turn out as expected, and I resigned. This definitely created a bump on my road to paying down my car loan. I decided to push out the date for fulfilling this debt reduction goal to December to give myself time to rebuild some savings and eliminate my loan. Because of this date change, we now juggle the car loan and a student loan.

Are you curious to see how the goals are coming along?

  • Spending: I’m doing pretty good with this so far. My friends have been interested in eating out more, but I have a little change jar that I’ve been using to help me with extra expenditures.
  • Investing: My husband has his 401k contributions automatically invested in some index funds. We also rolled over his previous employer’s 401k into a Roth IRA at Vanguard. Though our portfolios have declined due to market conditions, it’s not scaring us away from sticking to our investment plan.
  • Debt: The car loan balance is now $1,398.05 and I’m confident that it will be retired by December 31.

I’ve learned a lot during this year and I still have a few months left to complete my goals. The biggest lesson I’ve learned? Don’t give up; take it step by step. If you make a mistake, modify your course, change gears and keep your focus.

I’d be curious to know how you’ve been doing with your financial goals. How have you been coping with unexpected changes?

This guest post comes to you by way of Green Panda Treehouse, a uniquely named personal finance blog for college students and recent graduates. I’d like to thank Green Panda for this timely post and for sharing her goals with our readers.

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 22 comments… read them below or add one }

AmeriGlide October 17, 2008 at 11:15 am

Like you, I found that one of my biggest expenses was eating out. Luckily, this is also a pretty easy one to curb, because on average you can eat a lot better for a lot less when you cook your own food.

I have also cut out many unnecessary trips. I live pretty far from the city, so that means there are a few people I haven’t seen much lately.

I also haven’t bought any cars in the past month or so. I had been buying one at auction every month or so and selling it, but recently decided to hold off and see how other people are adjusting their spending habits, before I get stuck with a car nobody wants.

Moneymonk October 17, 2008 at 12:36 pm

I’m not cutting back on anything because I have no debt, but a fixed mortgage.

Business as usual here, ESG- earn it, save it spend it

Donny Gamble October 17, 2008 at 2:48 pm

I am glad that you continue to invest in your retirement account even with these economic conditions. It shows that you know the true value of investing in your future. Many people look at their 401k going down as a bad thing, I see it as a good thing because it allows me to invest more money into it at cheaper price so I can reap more benefits in the long term.

PF Newsletter October 17, 2008 at 11:24 pm

Like the others have mentioned I am, too, glad that you are still determined to go through the hard times with your head held high. I am sure the market will soon take a good turn. So until such time let us hold on to our sails.

Rachel October 18, 2008 at 8:17 am

There is a still a strong demand for talent and I still see lots of high paying jobs posted on popular employment sites: (networking) (aggregated listings) (matches you to jobs)

I see six figure jobs all over the place.

Caleb Nelson October 18, 2008 at 9:58 am

Agreed. Follow in the footsteps of the rich. Buffet isn’t pulling out. He’s actually heavily putting in. I think that you must look at the economy with a shut eye and do the opposite of the masses. I think you are doing well.
And the eating out thing. I saved a ton of money not eating out too.


Fire Creek October 18, 2008 at 8:35 pm

I’m not pulling out of the market, Keeping my money there to grow when it comes back. Not contributing right now, only because I’m making higher payments on school and car to pay them off faster.
Still gotta talk my wife into eating at home more instead of eating out 4-5 nights a week. (ouch)

george October 18, 2008 at 10:00 pm

No more money in the stock market and much tighter on the food and gas side of things. I am just trying to cut back where possible.

Green Panda October 19, 2008 at 6:08 am

Thanks for the support. I have decades before I retire, so my game plan is to keep investing. I still believe my money will grow in the long run.

Bill October 19, 2008 at 9:18 am

After having to deal with an unexpected car maintenance bill, my emergency fund, as low as it was before, is now depleted so my hopes for paying off my car loan early has been somewhat halted. But, as you said, keep focused and don’t let everything upset you. Skimming a little fat and becoming more frugal can be a good thing!

Austin REB October 19, 2008 at 10:13 pm

So there is one thing that really is hard, if not impossible, for me when it comes to the saving advice from all the financial blogs that I read. I just can’t seem to not go out to eat. I’m a really social person who loves to break bread with friends. I also can’t cook to save my life so when I do eat out the experience is twice as good for me. Ugh. This post just made me realize how much I do spend when I go out, but this was the first time I thought that maybe I should hit Whole Foods or Central Market for some cooking lessons. I suspect even with the inflated prices at those store, I’d save money when you add in wine and tip. Anyone else decided to do this in order to eat well and save a bit at the same time?


DES October 20, 2008 at 5:37 am

Definitely looking a ways to cut back and not making any risky investments. Thought I do think there are a lot of good investment opportunities out there right now but you have to be in a position to loose.

Beth October 20, 2008 at 9:48 am

Cut back eating out to twice a week? Seriously?

I wish there were more articles that had tips for those of us who already live frugal lifestyles (I’m lucky if I eat out twice a month!). The economy is hurting us more than it’s hurting people who afford to spend (or overspend) on eating out, entertainment and travel.

Slinky October 20, 2008 at 3:59 pm

For me it’s just business as usual. Invest in the 401K, save to open a vanguard roth ira, stock the emergency fund, pay student loans, and pay the car loan each month. Pretty typical for a recent grad. All extra cash flow is paying off the fiancee’s credit card right now.

Great timing to start putting money in the market though. Currently I’m only down $200 from what I’ve put in, and I’m building up lots of shares!

Jamie October 21, 2008 at 8:36 am

The only significant change I have seen is my 401K which others I’m sure are feeling as well. Fortunately I liquidated most of my stocks earlier.

The toughest thing I am dealing with is the price of my house right now. It just seems to keep dropping. I purchased the house right before the bust. I now have an upside down mortgage. It’s a terrible cycle of events.

Escape Somewhere October 21, 2008 at 6:33 pm

Eating out is my biggest problem is well. I like to cut expenses but its hard since that is one of the things I enjoy. Its nice to get out of the house and go somewhere. I have started avoiding expensive restaurants. To those that eat at home how much does your typical meal cost.

Silicon Valley Blogger October 25, 2008 at 10:49 am

I’m finally back to be able to join in the discussion here. Thanks to Green Panda for telling us how she copes during these trying times. I have had to make major adjustments as well — which I started to do last year, with the deliberate decrease in our income (as we left our jobs on our own volition).

These days, we are slowly building our income in order to close our expenses “gap” — it’s what I call the gap between our income and expenses. Right now, there is a deficit, but it’s shrinking over time. Our move to self-employment gave us the opportunity to start budgeting and trimming even before the crisis hit.

Best of luck to everyone as we work out our financial plans during this economic shift. Here’s hoping we get over this bump without being the worse for wear.

Emily October 29, 2008 at 11:13 am

I really like the way the plan is simplified into three categories and just a couple of sentences each. But I think that two more categories should be added:

Saving: everyone needs an emergency fund so that they don’t use their credit cards. And an additional savings account for things one may want so that they won’t get a loan or again use credit cards.

Additional Income: Most people live paycheck to paycheck and rightly so. I mean the minimum wage has not kept up with inflation and the cost of living. Most are working two jobs to keep up. But it would be better to have something like a money making blog or online business to help bring in additional money to pay off debts faster, build up a savings, and invest.

Just my .02.

work at home marketing

California Refinance December 3, 2008 at 7:07 pm

I have decided, after much personal turmoil to cut it back to almost nothing.

I want to see what life would be like having nothing, owing nothing and living as a minimalist.

To this point I have not liked the outcome but I am learning to cope and sticking to my goal!

Hopefully I will learn even more about myself and my finances through this process.

Yasinta May 7, 2009 at 12:28 am

Hey, you’re just right. Never ever stop at investing for retirement. Stick to your plan and don’t ever take out the money. It’s still a long time to go, but you ‘ll find it really worth of later. I’m 23, not yet working. But I’ll start my retirement investment soon after I earn my own money. I’m sorry to write this without experience, but I read some cool books about that, and I try to figure out how it works. It’s really a thing everyone must have. Let time works the money for you.

yasinta May 7, 2009 at 12:34 am

Dining out wastes your money without you realizing. But you will see how much your expenditure decreases when you stop it, or lessen the frequency to once in a week or two. We spend much on food we don’t prepare ourselves. And yet, we can’t control what they put in the food. prepare your own food as seldom as possible, add in a lot of fiber and “rainbows”, make sure u’re getting enough vitamin, omega, and protein. Eat at less sugar and fat as possible.

Brian @ Indianapolis Foreclosures September 26, 2010 at 3:57 pm

Its amazing how much money you can spend eating out each month. It doesn’t seem a lot per meal, but when we started budgeting and keeping track of our expenses, we were shocked at the total!

Oh, and cutting back on vehicles was the best move we made! We now have no car payments, and I hope we never go back to one!

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