Wars, inflation, interest rates, elections and market downturns may look different each time, but there will always be another economic shock to navigate. We can’t control what happens next, but we can control whether our finances are prepared for it.
You Can’t Predict the Next Economic Shock
When uncertainty hits, it can be tempting to put major financial decisions on hold. You might delay buying a house, starting a business or investing until things settle down.
The problem is there will always be something happening. While Trump may be unique, the broader point is that political events, inflation, interest rates and other global or local developments will continue to affect the economy over time. Waiting for everything to feel certain can mean waiting indefinitely.
Preparing for an economic shock isn’t about predicting exactly what will happen or when. It’s about focusing on the parts of your finances you can control, rather than allowing the news of the day to determine your next move.
A Financial Plan Gives You Something to Work Towards
One of the best defences against an economic shock is having a long-term financial plan.
A financial plan starts with understanding what you actually want for your future, then working backwards to determine what actions you need to take today. Without knowing where you’re trying to get to, it’s difficult to know whether the decisions you’re making now are moving you in the right direction.
Goals such as “I want to retire early” or “I want to buy a house” are a starting point, but they need to become specific enough to act on.
Take buying a $750,000 house in two years. If you needed a 10% deposit, that’s $75,000. Broken down, that’s around $37,500 a year, $3,125 a month or $720 a week.
If $720 a week isn’t realistic, there are two variables you can change: the goal or the timeframe. You might target a less expensive property or give yourself another year to save. The alternative is setting an unrealistic target, sticking to it for a month and eventually giving up.
Your Plan Should Be Able to Change
Having a financial plan doesn’t mean setting it once and following exactly the same path for the next 20 years.
Life changes. The cost of living can increase, you might have children, your income can change or something completely unexpected can happen. When circumstances shift, your financial plan may need to shift with them.
That doesn’t mean the original plan has failed. Sometimes progress towards one financial goal slows because something else has temporarily become more important.
If you’re no longer able to save at the rate you originally planned, for example, you can adjust the goal or extend the timeframe rather than abandoning it completely.
Build a Buffer for When Things Go Wrong
A plan also needs room to absorb the financial shocks that inevitably happen along the way.
An emergency fund can help cover unexpected costs without immediately relying on short-term debt, which comes at a cost.
Insurance was another safeguard discussed in the episode, including life insurance, income protection and health insurance. The purpose is to have protection in place if illness or another major event disrupts your ability to continue following your financial plan.
With those foundations in place, it can become easier to keep moving towards your long-term goals despite what’s happening around you.
Waiting for the Perfect Time Has a Cost
Fear of making the wrong decision can also stop people from taking any action at all.
Is this the right property? Is this the right fund? Should I use this provider or another one?
When every decision feels like it needs to be perfect, doing nothing can start to feel like the safer option. But doing nothing is still a decision – and it can carry its own risk.
Mike and James illustrate this using five hypothetical investing approaches. Each person invests, or has available to invest, $2,000 per year between 2000 and 2020.
Peter Perfect somehow invests at the lowest point every year and finishes with $151,000. Ashley Action invests as soon as the market opens each year and finishes with $134,000, while Matthew Monthly spreads his investment across each month and finishes with $135,000.
Even Rosy Rotten, who has the incredibly bad luck of investing at the highest point every year, finishes with $121,000.
Larry Linger keeps waiting for a better opportunity and leaves his money in cash. After 20 years, he has just $44,000. His money hasn’t benefited from compounding returns and has been eroded by inflation over time.
The point isn’t that timing never affects an investment outcome. It’s that waiting indefinitely for the perfect opportunity can have a much greater long-term cost than people realise.
Taking Action Doesn't Mean Doing Everything at Once
Taking action doesn’t mean rushing out tomorrow and buying a property or investing everything you have.
It can mean putting a budget in place, reviewing your KiwiSaver, starting to save, investing consistently or simply taking one step towards a clearly defined goal.
The fundamentals aren’t necessarily exciting, and they don’t promise a shortcut. But consistent actions over time can keep you moving towards your financial goals without needing to predict exactly what the economy or markets will do next.
Key Takeaways
- There will always be another economic or financial event outside your control.
- Build your financial plan around what you want for the future rather than what’s dominating today’s headlines.
- Turn broad ambitions into specific goals and break them down into achievable actions.
- If a goal becomes unrealistic, adjust the goal or timeframe rather than abandoning your plan.
- Build an emergency fund to help absorb unexpected expenses.
- Your financial plan should change as your circumstances and priorities change.
- Waiting for the “perfect” time to invest or make a financial decision can carry its own long-term cost.
- Taking action doesn’t mean doing everything at once – consistent steps over time can make a meaningful difference.
Next steps:
Bring financial education into your workplace with Lighthouse’s financial literacy workshops, covering practical concepts to help your team make more informed financial decisions.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
