Managing your money requires an understanding of micro and macroeconomics. Even though most people sweat the small stuff, the bigger picture things are just as important. Put simply, you can’t focus solely on your own finances. Even with a strict budget and calculated investments, the economy will affect how much money you’ve got to spend and, in turn, your net worth.
An obvious example of this is inflation. High inflation means the cost of goods and services is rising faster than earnings and interest rates. Essentially, inflation is your spending power in a given economic climate. Therefore, if inflation is high, it means spending power is low, i.e. you get less for your dollar at the checkout.
Some Things Are Beyond Your Control
Even if you have savings and manage a monthly budget like an accountant, you can’t control inflation. Therefore, even with the best will in the world, you’ll end up spending more during times of high inflation. This, in turn, will impact your finances. Another macroeconomic factor you have no control over is the housing market. Owning a property contributes to your net worth and, if the housing market is in a slump, your finances will take a dip.
Investors also have to contend with macroeconomic factors. There’s inherent risk within the financial markets. Individual securities come with certain risks, but the markets as a whole also carry a certain amount of risk. If there’s a financial crisis and the stock market crashes, you can’t do anything about it. That’s obviously a problem if you own stock.
The picture we’re painting here isn’t meant to scare you. There are things in life you can’t control, and some of these things will impact your financial situation. The good news is that you can prepare yourself for any hurdles that might be heading your way. There are a plethora of online resources to help you stay updated, such as this economic data calendar, which provides a clear overview of important events that could affect your finances.
Planning for Future Changes
For example, if you filter the results by country and importance, you’ll see that the US government typically announces its core inflation rates during the second week of each month. As we’ve said, you can’t change what’s going to be announced. You can read the latest financial news stories to see what the latest rate of inflation might be, but you can’t change it. However, if you use the economic calendar to see when the next announcement is due, you have the option to wait for that date before making major financial decisions.
Then, once the announcement has been made, you can adjust your spending as necessary. The quicker you can adjust your spending, the better chance you’ve got of saving money. Again, there will be unavoidable changes to your finances when inflation rates shift significantly. However, the more aware you are, the better you can react. The broader point here is that managing your money effectively requires planning.
Using an economic calendar to monitor important events is a form of planning. It allows you to think ahead and react to situations in less time than you otherwise could. That’s important if you’re trying to be smart with your money. What’s more, it shows why you can’t be hyper focused on your own situation. There’s a whole world of financial dynamics out there, and ignoring them is less beneficial for financially minded people. So if you want to make the most of the small stuff, make sure you’re always looking at the bigger picture.