The latest newsletter from Ian Bremmer, head of the Eurasia Group consulting, is titled, “2018 Top Risks.” Here’s how he opens his list of concerns. (Bremmer doesn’t use caps.)
“let’s be honest: 2018 doesn’t feel good. yes, markets are soaring and the economy isn’t bad, but citizens are divided. governments aren’t doing much governing. and the global order is unraveling … if we had to pick one year for a big unexpected crisis — the geopolitical equivalent of the 2008 financial meltdown — it feels like 2018. sorry.”
Chilling, isn’t it? Of course, no one can pierce the fog of the future. The U.S. economy continues to do well, making 2018 a good year to focus on building a margin of financial safety. So, here’s some personal finance suggestions for this year.
First, keep it simple. For instance, “automate” the process of savings. Have your bank or credit union automatically shift money from your checking account into your savings account every month.
Second, build a margin of safety. One time-honored technique is to diversify your investments. As the great financial adviser Don Quixote de la Mancha said: “Tis the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”
Another safety approach is to pay down debts, with an emphasis on high-rate credit card debt. Most people can eliminate their credit card debts with budgeting. But not everyone. If that’s you, there are two basic methods.
With the avalanche technique, list your credit card debts, starting with the highest interest rate debt. Target payments at the high rate debt first. Pay the monthly minimum on the remaining cards. When the high rate debt is paid off, repeat the process with the next card with the next highest rate. You will pay the least amount of interest.
The snowball strategy is based on earning a quick emotional reward. List all your credit card debts, this time from the smallest balance to the largest. The interest rate is irrelevant. Attack the smallest debt first. Pay the minimum on the rest. When you have eliminated that debt, go to the next smallest balance.
Third, spend time on two long-term investments: Education and networking. Investing in your skills and contacts are both margin of safety investments. They help turn dreams of what you would like to do in the next stage of life into reality.
Finally, stick with modest steps. Don’t try for an immediate transformation. Just look to build some good financial habits over time.
Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.