Be prepared for the good times and the bad

By Mike Brady, Michael Brady & Co. Wealth Management

Debt is everywhere and it’s piling up around us.

Student loan debt, underfunded pension obligations, consumer debt (credit cards, auto loans, residential mortgages) and the unfathomable federal deficit. Thank goodness personal incomes and the gross domestic product (GDP—or the income of the nation) are rising and are currently covering the debt payments.

But what happens when the economy slows and incomes don’t increase or possibly fall? What happens when the payments can’t be made?

While the sun is shining, it’s time to be stocking away some nuts for the winter. While incomes are high and jobs are plentiful, it would be wise to not spend all of the income being made and to set aside some cash and/or to pay down variable-rate debt. As the economy heats up, interest rates will rise and make that variable-rate debt more expensive to own.

Student loan debt is a special situation and you should speak with us before refinancing or paying off that debt with any other form of debt such as a home equity line of credit. Beware of consolidation of your federal student loans into private consolidation loans. You could lose your rights under the federal student loan programs once you consolidate with a private lender.

Try to live within a budget and to pay yourself first before spending your income.

Paying down high-interest debt is a better return on your money than investing. But once you have paid down the debt, continue to make those monthly payments into your investment accounts and avoid running those credit card balances up again.

Just because your income is flush today doesn’t mean this environment will last forever. Be ready for more challenging times that may be around the corner.

Have a budget, a plan and a strategy to ride out the difficult times. Your investment allocations should be designed to take advantage of the difficult times and to flourish in the good times. Be prepared to buy when there is fear and panic in the markets and be prepared to pull some profits off the table when there is greed and euphoria.

If you would like to prepare your finances for the good times and the bad, give us a call to create a plan that can help keep you safe and prosperous.

Michael Brady is a fee-only, full-time fiduciary and certified financial planner. To set up an appointment, call 440-235-2100, email Mike@MichaelBradyCo.com, or visit MichaelBradyCo.com.