Forget scary movies -– have you dared to look at your 401k statements lately?
The financial headlines keep getting more frightening, and the numbers on your retirement accounts are probably more red than green these days. Sometimes it’s enough to make you want to throw in the towel on your savings goals.
But financial experts say that’s the last thing you should do when times get tough. Instead, refocus your efforts and revise your goals if you must -– but don’t abandon savings altogether. Here are some key things to keep in mind when you’re tempted to take your money and run:
Use the economic slump as an excuse to re-focus your goals
When your financial situation takes a hit — that’s the time to investigate where your money is going. Determine whether there are areas where you can cut back before you consider revising your savings goals, said Andrew Schrage, editor of Money Crashers.
“Every dollar that you do not save is a missed opportunity that puts you even further behind in your ultimate financial goals,” he said. “For example, if your employer matches your 401k contributions, make sure you are saving as much as your maximum 401k contribution limits will allow; otherwise, you are missing out on free money from your employer and the money that will be made on the investment.”
Use the power of dollar cost averaging to your advantage
Long-term investors, who are at least a decade or more away from retirement, can actually benefit from a downturn in the stock market thanks to dollar cost averaging.
Rather than investing a chunk of money all at one time in the stock market, the key is to regularly invest the same amount of money every month –- automatically if possible, such as through your employer-sponsored 401k retirement plan.
When the market goes down, that money will buy more shares in the stocks that have lost value. And when the market eventually rises again, the stock values -– and your total investment -– will grow. So rather than agonizing over those red numbers, just tell yourself, “Now I’m able to buy more shares!”
If you are a casual investor primarily investing for your retirement, you really don’t need to over-think this process – just make sure your money is automatically deducted in a balanced portfolio that makes sense for your expected retirement age. Then let your investments do the work for you.
Learn more by trying Suze Orman’s Dollar-Cost Average Calculator.
Every little bit counts
A thinner wallet doesn’t mean you should necessarily ease up on savings. If paying for the necessities in life becomes a challenge, you might need to scale back temporarily, but never give up on savings altogether.
For example, you might need to prioritize your rainy day savings account over “luxury” savings goals (a vacation or a new house). Having even a small amount saved up will give you peace of mind and can help in case of an emergency, which can pop up at any time.
“If you stop saving and lose sight of your goals, you’ll lose momentum and it’ll be difficult to get started again once the times improve,” said Schrage. “Your perseverance will pay off in the end because not only will you have saved money, you’ll have experienced character-building by resisting the easier path.”
Saving money actually helps the economy
In an economic downturn, some people argue that spending money — rather than saving it — is the key to stimulating the economy. In other words, you can look at that shopping spree at Macy’s as doing your patriotic duty to keep the financial engines humming.
But in fact, saving your money at a bank also keeps the economy on track, as that money stays in the marketplace and is lent out to people and businesses and reinvested in your community many times over.
But no matter how bad things seem, there’s one thing you should never, ever do: hoard money under your mattress. That’s one place where your dollars aren’t helping anyone or anything, including a good night’s rest.
Cynthia J. Drake is a personal finance writer who lives in Michigan. Cynthia J. blogs via Contently.com.