“You are the sky. Everything else—it’s just the weather.” – Pema Chödrön
With each new day, new year, or news cycle, we are faced with unexpected situations. While juggling our daily lives, it can be challenging to face new developments that feel outside of our control. Like the misty fog in the Berkeley hills, some things will come and go of their own accord. Protecting our mental and emotional energy can place our focus where we have the power to act and create a sense of calm for ourselves.
Time, energy, and financial resources all play a role when we are buffeted by outside events. How we choose to prioritize these resources can ground us as we navigate changes in the “weather.”
What We Can’t Control
While we can’t wave a magic wand to change things like market interest rates, we can position ourselves to manage how those interest rates personally affect us. One way to diminish the personal impact of high interest rates is building savings to make borrowing unnecessary. When borrowing is necessary to finance a large purchase or, say, open a HELOC for much-needed home improvements, having our financial affairs organized is key. Focusing on the basics, such as paying bills on time, only taking on debt that is manageable, and using credit responsibly, will go a long way toward giving us access to the lowest interest rates available so that even in a higher rate environment, we’re minimizing our borrowing costs.
Tax laws change with each new administration, and the current incoming administration has indicated they will pursue extensive change. We can’t know which specific changes will be enacted though a few possibilities include elimination of the EV tax credit, elimination of taxes on social security income and tip income, and the creation of a deduction for auto loan interest. We can anticipate how they might affect tax strategies and reach out to our tax preparers to gain clarity before it’s time to file.
We also cannot control whether the stock market will rally or fall in response to news and geopolitical events. Investing and rebalancing a broadly diversified portfolio will help us with the market “weather,” buying at lower prices and capturing gains when prices rise. While it can be difficult to temper the urge to react to specific market conditions, making changes to an investment approach based on our specific life circumstances is a strategy more supportive of long-term success.
A Positive Mindset
Placing attention on what we can control fosters a more positive frame of mind, which in turn helps us make better financial decisions. One key example is an awareness of our financial habits and a clear sense of whether current spending is sustainable over the long term. Understanding our spending choices and cultivating a practice of saving aren’t easy habits to develop yet they provide a foundation that creates opportunities to spend when the unexpected occurs. Putting into practice the act of saving ahead of known large expenditures can become a generic habit of saving that creates flexibility in future spending. Choices will emerge at unexpected moments, and in those moments, we’ll reap the benefits of the savings habit we’ve built.
When we focus on the points of convergence between our desired priorities and our available actions, we are most effective in our decisions. For instance, if you have been planning the purchase of an electric vehicle (EV) and now know that the incoming administration seems committed to eliminating the EV tax credit, you might move that purchase forward to take advantage of the currently available $7,500 federal tax credit. While you may not have saved as much as you wanted and need to take out a larger loan than expected, you are likely to come out ahead if you qualify for the credit – and it will be even more positive if the proposed car loan deduction comes to pass as well.
The Microcosm of Charitable Spending
Volunteerism and charitable giving patterns represent choices in how we spend our time and use our money, and similar principles to the habit of saving apply. A Donor-Advised Fund (DAF), for example, can act as a “savings account” into which you contribute in a year where the tax deduction is most advantageous, but the balance could be used for contributions for multiple years in the future. During a cash flow pinch, we might delay or reduce donations from our income, but rely on our DAF to sustain continuity for the organizations we support.
Reframing Our Actions
Unpredictability in life is inevitable, and when it comes to our finances, focusing on what we can control and letting go of what we can’t control is powerful. Being intentional about our spending and saving habits gives us a chance to align our financial decisions with our priorities. This can in turn, support our own mental and emotional health and can help family, friends, and community in a meaningful way – all of which creates an experience of control and intention.
