Now is the time to save

Early reports indicate that retailers had a record-setting Christmas, an indication that consumers are feeling more optimistic.

Via Money Anxiety:

Today, the Money Anxiety Index is at the lowest level it has been in the last six years, Geller said, “and that’s a very good thing.” Consumer spending is high, buoyed by strong economic data such as a much lower unemployment rate than in recent years and lower gasoline prices.

“Psychologically, people are getting a good boost and this is making them spend more money,” Geller said.

However, a decrease in financial anxiety coupled with increased spending and a decrease in saving can also have a negative impact on wise financial planning for the future.

“Because the Money Anxiety Index is so low, this is a good time to put money aside in a smart way. As such, the role of the financial planner now reverses and should become more about helping customers have a longer term view,” Geller said. “Financial advisors should work with their clients to overcome the natural instinct to spend everything lavishly, which is what most people do when things are getting better.

The stock market has been going up for nearly six years, and that’s providing a “wealth effect” for investors. But the same was true for homeowners during the period leading up to 2008. That was a time when many people believed that real estate could go nowhere but up, making it safe to use their home equity as a piggy bank. That did not turn out well.

Keep in mind that stock markets can go down as well as up, and just as quickly. The gains in the stock market are not an excuse to stop saving. In fact, it’s a good reason to save more. Remember Pharaoh’s dream from your Sunday school classes? The time to sock away money is during the “fat years” as a way of surviving the “lean years.”

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