How to Handle the State of the Economy and Emotions

Over the last few weeks, I have had many conversations regarding the economy and politics with people I wouldn't normally discuss these topics with. The decline of the overall U.S. economy and the political and governmental influence in trying to mitigate and correct the direction of the economy has become dinner table talk for many families and friends across the nation.

From mid 2008, talk of the economy and the election began informing the American people of the serious problems our economy is facing. Truth be told, America has been in a downward spiral for more than a decade, the majority of it caused by the same government that is now telling us that they are trying to correct it.

Where was everyone a year ago? The process and speed of these "Economic Stimulus Packages" and "Housing Stimulus Packages" being implemented is nothing short of scary. Questions we are all asking ourselves are good questions, viable, and need to be answered. But getting here unchecked by the people has been our fault.

As free citizens hear America being described as Socialistic and begin to feel the financial pain personally they begin to listen and care. Had these now concerned citizens been listening all along they would know that we have been on this path for a long time. It has been described by Robert Reich's (22^nd Secretary of Labor) blog as Lemon Socialism. "Taxpayers support the lemons. Capitalism is reserved for the winners."

A CNN poll reports that more than 70% of Americans opposed the stimulus package that President Obama signed last week. The threat of higher taxes, inflation and uncertainty of the security of their banks has many Americans questioning the typical financial management they have used (or ignored) for so long.

The reason so many in America are currently opposing these stimulus packages is the lack of information they are really able to receive. Yes, you can use the internet to review any of the packages. However, they are written in language that is difficult to read and is so immense that it is nearly impossible to read in its entirety before it is voted on. Most of us get the sound bites from the television and radio, basing our opinions on the information that particular media outlet decides to release. If you are like many Americans, it is difficult to know what to do. The lack of real information coupled with the media's drama makes it very difficult for an individual or family to make decisions regarding their finances, homes and careers.

The first step in understanding how to personally react to the economic crisis is not to panic. The majority of people's anguish is money related. Worrying more and more about the money you have lost in your 401k will not bring it back. "In fact, worry can make matters worse, increasing your stress level and causing anxiety (which in turn causes irrational thinking and can lead to poor decision-making.) So the last thing you want to do is panic," according to an article by World of Psychology.

Instead of panicking, develop your own strategy to ride out the economic crisis. Discuss your plan with your spouse; get your children involved to their level of understanding. Explain, if necessary, why you can't afford the things you were once able to. It is important that you are a team and as a unit understand where you stand as a family and where you are trying to go. This communication alone will alleviate much of the stress experienced during difficult times.

Investing Your Money

Investing is a term that is not liked very well by the average American today. Many have liquidated any investments they have. They are not necessarily looking for other investment vehicles to stash their money in either. Many claim that the stock market is greatly affected by emotion, and the fear is running rampant. Many have lost great portions of their 401k's and other retirement investments.

Keep in mind that most of these investments are long term strategies and should be continued to be looked at that way. As difficult as it is to watch your hard-earned money taking a bath in the market, the fact is that stocks are on sale right now and it may be time for you to add new money to your investments. How to Invest During America's Financial Crisis: Diversification is an article that describes the success of Sir John Templeton's investment strategy in 1939.

Saving Money

Another thing Americans ARE doing is saving their money. Most have their money hiding in a money market account or regular savings account. Yesterday, two different financial talk show hosts predicted that you would do well to invest up to 20% of your money in coffee cans buried in your basement. Yes, this sounds a little dramatic, but how much would it take for the banks to really fail?

Again, Americans are walking on egg shells and believe it would take a lot less than another terrorist attack to send everyone to the bank to withdraw their money. Predictions from the media indicate the banks would never be able to cash out everyone of us. Your opinion of this may be different than mine. However, many are heeding this advice.

The Unknown

Of course we fear the unknown. It is very difficult to make financial or other decisions based upon the ranting of a "talking-head" on the television. Sound bites and other bits of negative information confuse us and force us into a negative mindset.

Where it is important to do your best to remain informed, it is also important to remain realistic. Develop a plan that best suits your needs. Continue to save and invest your money carefully. Being stressed out things that are not in your control can have negative affects on your health and family. Spend time with your loved ones and discuss your concerns, come up with a plan of action and initiate it. Change your plan of action as circumstances and events determine.

It is okay to be angry about the decisions this country is making. However, do not let it affect your judgment regarding your personal finances. It is important to express our opinions regarding these choices and decisions our law makers are implementing at such a rapid pace, but remember that we elected these officials to mitigate these issues, voice your opinion to them and remember them during the next election.