When the economy is in the midst of a major downturn, many investors will immediately conclude that their funds are under-performing. However, before making this blanket assessment, there are several factors that you should take into account. If your fund has declined in value enough to worry you, then it’s time to ask yourself some key questions.

1. Is This Fund Appropriate for You?
A fund that has returned 11% over a given period may seem “better” than a fund that has returned 3% over the same period, but the better-performing fund may have earned those returns by taking on certain market related risks that you might not want to assume. Investment objectives will vary widely among investors, so you need to consider whether the fund fits your time horizon and investment objective.

2. How is this fund performing relative to other funds in its peer group?
Different asset classes, such as stocks and bonds, will perform differently because they have different risks. The value of a stock fund will tend to be sensitive to equity market fluctuations, while bond fund values will respond more to interest rate movements. So before concluding that your stock or bond fund is underperforming relative to one of its peers, be sure that you’re comparing apples to apples.

3. How is the fund performing relative to its appropriate benchmark?
Virtually all mutual funds impose certain requirements that limit the investment options of the portfolio managers. For example, if the investment policy statement of a given stock fund requires that at least 80% of its portfolio assets to be invested in stocks, the portfolio manager will not be able to allocate more than 20% of assets to bonds or cash, even in a bear market. Therefore a reasonable standard for measuring mutual fund performance might be to consider how the fund’s performance compares to the overall performance of an appropriate index (meaning one that matches the subcategory of the fund as closely as possible). If your fund consists of bonds, it obviously makes no sense to compare it to the Dow Jones Industrial Average. There are several classes of stock funds, such as small-caps and international funds for which the Dow is probably not an appropriate comparison.

4. Are there any specific extenuating circumstances to explain the under-performance?
There could be any number of reasons why your fund’s short-term performance may not be particularly meaningful, especially if the economy as a whole has experienced a decline in production. For example, you may have bought a fund that has performed poorly in the past, but you also believe that a new management team will turn this around in the near future. This factor is particularly important to remember after a decade like the 1990’s, where rising annual returns were achieved by many funds. In view of this, you might want to consider whether your expectations are realistic. Before you cash-in your “under-performing” shares, you may want to determine the factors that are driving the performance of your funds.

If it looks too good to be true, it probably is.

Twenty years ago, Mom was probably referring to things like the Publisher’s Clearing House Sweepstakes, free puppies, and clowns. Today, Mom would most likely replace the sweepstakes scam with debt settlement companies.

And for good reason.

Debt settlement companies quickly spring up in bad times and vanish just as quickly in good. Most people don’t even realize these exist until skyrocketing debt levels come pounding on the door. Then they appear, circling, as the graphic Southern vernacular puts it, “like crows around road kill.”

Dark humor aside, the reason why there are so many debt settlement companies is quite simple. Seasoned Budget Trackers already know the challenges of successfully paying down credit card debt. For those new to the budgeting self-discipline, it can seem overwhelming. And after a few rounds on the unexpected medical bills + mortgage interest rate jumps + threatened job loss rollercoaster, a settlement company’s expert appeal can appear heaven-sent.

But before saying that you’re too smart to fall for something this obvious, consider this point.

Anyone who’s recently attempted a mortgage modification, probably thought more than once how nice it might be to have someone else deal with all the red tape and all those voice-activated phone trees from hell.

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Mid-January is a tough time for budget resolutions.

Think about it.

January 1st arrives, complete with new hopes and fresh dreams, only to be derailed mid-month by football playoff parties and the after-after Christmas sales. These onslaughts can shake even the most determined BudgetTracker off the resolution bandwagon.

The good news is that we can always start over. The better news is that budgeting doesn’t have to be painful.

First, clearly state those reasons to budget and save.

• I want to get rid of nasty credit card debt;

• I want to pay down auto/student/home mortgage loans;

• I want to build a safety cushion;

• I want to build the “I-can-now-quit-my-job-to-start-my-own-business” fund;

• I want to travel around the world in my new, 300-foot yacht.

Well, the last suggestion is a bit of an exaggeration, but you get the picture.

Keep determined by singing, muttering, or even chanting your reasons over and over again. Do whatever is necessary, even if it means putting post-its all over the house or re-jiggering your BudgetTracker goals. If your family and friends look at you strangely, tell them it’s a new type of meditation practice.

Whatever works, do it.

Next, re-calculate your total fixed monthly expenses. Remember, fixed expenses will include rent, mortgage payments, student loan payments, utilities, child care expenses, phone, gas, cable—all those essentials necessary for keeping a roof over your head.

Subtracting fixed expenses from net income reveals your monthly free cash flow amount. This is what you can use toward your other variable costs. Have more income than fixed expenses? Congratulations, you can now get back on the budgeting bandwagon!

For those new to budgeting, I recommend applying 10% (possibly even 15%) of the free cash flow total toward your goals. Schedule this for three months in a row.

Why three months? And why just 10-15%?

Well, they don’t call them the little things in life for nothing. Just about everyone can manage 10-15% and three months is typically the time it takes to establish a new habit. I’m betting that after three months, you won’t miss the money and will probably be addicted to watching the BudgetTracker transfers mercilessly eat away at the remaining dollar goal amounts.

I’m also betting you’ll bump up the transfer percentage amounts.

Think I’m wrong? Then take the three-month, 10% challenge and let me know how things turn out. If I’m right, I’ll expect to see some serious Debt-Free Strutting on YouTube.

Note: Other options are possible when fixed expenses exceed net income. I plan on discussing these in a later post.