How to Stay Calm and Make Good Financial Decisions in The Current Financial Crisis

The news has been filled with stories of financial gloom and doom and many are lead to think that the world is coming to an end. The word recession is being thrown around right and left, although the standard measurable definition of a recession hasn't been met yet (two consecutive quarters of negative GDP growth.) The news media can cause on to make decisions out of fear, and such decisions are almost always wrong.

	If you find you are tempted to make decisions out of fear, then you should perhaps avoid the financial news as much as possible. How much the Dow went down in one day or who went out of business this week doesn't affect you in the long term. Remember Enron? Unless you worked there or were unwise and had a large percentage of your money in Enron stock, it probably has no effect on you today. (Never put a large percentage of your money in any single stock.) Enron declared bankruptcy on December 2, 2001 and it's been completely forgotten in the everyday lives of most people.
	Remember that the news media tends to exaggerate the bad and ignore the good, not because they are mean spirited, but rather because bad news attracts large audiences. Zig Ziglar is attributed as saying "The media has correctly predicted 36 of the last 2 recessions".
	Psychologists have discovered that the pain of loss is about three times the joy of gain. That is, the pain of losing $1000 is about the same as the joy of gaining $3000. Therefore, if you watch your portfolio drop in value by $1000 one day and it goes back up $1000 the next day, you will still feel as if you lost something. Therefore, it is unwise to monitor your investments daily. Remember, investments are for the long term only, so one day doesn't matter one way or the other.
	On the same note about joy and pain, if you do read the news, read 3 positive articles for each negative article you run across. Positive economic news abounds, believe it or not, it's just not put on the headline page. For example, new home sales were up 2.7% in September 2008 over August 2008. You wouldn't have guessed that from the headline news.
	Eliminate all debt and have a strong cash emergency fund. If you are personally in a safe position, then the economic news will not have as much power over you.
	Get a wise accountability partner who is detached from your money. If you still want to sell while the market is down, first consult with someone who is not emotionally connected to your money. That person may be able to talk you out of making a rash decision.
	Do not pin your hopes on a politician. Even if your favorite candidate is elected to office, politicians rarely follow through on campaign promises, and campaign promises almost never have the claimed effect. Instead, rely on your own hard work and ingenuity.