How to protect your finances in 2015

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Young couple calculating budget

Young couple calculating budgetYou work hard to create the best possible financial situation for yourself and your family. Unfortunately, there are situations in the world that can threaten your financial well-being. As 2015 gets firmly under way, here are some things to consider when it comes to protecting your finances:

Three big threats in 2015

Andrew Gauthier, the founder of Red Cedar Advisory, has identified three big threats to consumer pocketbooks in 2015. Here are some things to consider as you plan for the year:

  1. Overconfidence in stock market performance

“Since the beginning of the year, volatility in the stock market has been plaguing news headlines,” says Gauthier. “One might even suggest we are headed for a market correction. After all, the Dow Jones hasn’t experienced a correction since the summer of 2011.”

For some investors with a long time horizon, a market correction isn’t such a bad thing. It’s a chance to buy more for less. For others, though, the situation can be problematic. “Consumers should be more conservative in their approach to finances, especially if you’re nearing retirement,” says Gauthier. “This is the time to consider fixed rates of return or principal protection.” He also suggests keeping your portfolio diverse so that there is less exposure to volatility.

For consumers who have a solid portfolio already, it might not be a bad idea to have a little extra cash on hand. If there is a market correction this year, it could be a good chance to buy some assets “on sale.” For those involved in dollar cost averaging and indexing for the long-term, staying the course, as part of a properly allocated portfolio, probably isn’t a bad idea.

  1. Oil prices may rebound

Right now, many consumers are rejoicing in low oil prices that translate into better prices at the pump. Some consumers might even adjust their budget expectations to take into account the lower fuel prices. This is a mistake. “This party won’t last forever,” says Gauthier. “John Hofmeister, former president of Shell Oil, has suggested that prices will return to, and surpass, their 2012 levels.”

Rather than become complacent about low gas prices, now is the time to prepare for a rebound. Continue to budget the same amount for gas costs, and if your transportation category has excess at the end of the month, save it. This will boost your savings, as well as help you continue to live as though higher gas prices are still in effect. “Fuel prices are as low as they have been since early 2009,” Gauthier says. “After such a dramatic drop in price, it would be wise for consumers to prepare themselves for a rebound.”

  1. Payment data breaches

The third threat Gauthier sees to consumers in 2015 is data breach. We’ve seen data breaches with increasing frequency in recent years, and the coming year is no different.

“Hackers are becoming a bigger threat to the average consumer with each passing day,” insists Gauthier. He suggests keeping an eye on your credit card statements and your bank accounts. Watch for discrepancies and signs of fraud and report them as quickly as possible. You’ll need to change your account information as soon as possible, and you might need to take other steps to protect your finances.

Steps to protect your finances in general

While the above are specific threats to guard against in 2015, there are other general ways to protect your finances in the coming year. “Prepare yourself for any potential threat,” warns Gauthier.

If you want to increase your ability to protect your finances from unexpected catastrophes, here are some general actions to take:

  • Buy appropriate insurance: Chances are that you can’t afford a large-scale financial difficulty on your own. The right insurance policies can protect your finances. Make sure you have insurance on your home, car, and health. You might also need to consider disability insurance, and life insurance so that your family is protected in the event of the unthinkable.
  • Build your emergency fund: Don’t forget to build an emergency fund. Make sure that you set aside money each month for a rainy day. This way, you have something to draw on in an emergency, and you can keep your finances from collapsing completely.
  • Income diversity: Consider building alternative sources of income. If you lose your day job, having a side hustle to supplement your unemployment benefits until you find a new job can be helpful. Look for ways to diversify your income so you aren’t stuck if something falls through.
  • Pay down debt: Finally, work toward reducing your regular monthly obligations. In a tough financial situation, your debt drains your resources. Get rid of debt if you can so that you don’t have to worry about it later.

With the right preparation, you can protect your finances in the coming year. Look ahead, and try to anticipate some of the problems that could put your finances at risk. “As we embark on 2015, we should be aware of potential opportunities and threats in our financial lives,” says Gauthier. “Keep an eye on your accounts and be disciplined with your finances.”