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Credit Wise
(featured column)
How
to Hunker Down Until the Financial Storm Passes
by Jennifer
Wallis
It seems like every day, the financial crisis is
the top news story. At first, it was easy to just hope that it would pass quickly without doing too much damage to our personal
portfolios. Sometimes, we tend to think it doesn’t apply to us when it’s
some faraway bank failure in the daily headlines. However, this crisis doesn’t
seem to be passing anytime soon. It’s important to look at the way you manage
your personal finances and make sure you are in good shape to survive until the
storm passes. Here are a few things to consider: More...
 | Investments:
It can be difficult to know what to do when advice from financial experts
differs greatly. Some say “buy” while others scream “sell!” After
watching my 403b (non-profit equivalent of a 401k) gain a great deal of
money and then promptly lose it, I couldn’t take it anymore. As soon as
the stock market rebounded, I moved my funds from high risk/high return
funds to low risk/low return funds. I may not make much money right now but
I won’t lose much either. Long term, it may have been fine to leave my
funds where they were but I just couldn’t watch my account lose any more
money. I do not pretend to be an investment expert so I’d suggest you talk
to your financial advisor before moving funds. Find what works for you but
for me, moving my money to less volatile funds was the way to go until the
market stabilizes.
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| Debt:
Now is not the greatest time to have debt, but if you do, you’ll just have
to deal with it the best you can. Of course, it’s more important than ever
to pay your bills on-time. Credit card companies are really scrutinizing
their customers because they are wary of anyone showing signs of financial
stress. Now is definitely not the time to rack up late fees and give your
card company a reason to raise your interest. Paying late can easily land
you paying interest well over 30% on some cards.
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Normally, I am a huge proponent of paying off as much debt as you can. If your
savings are well stocked, I’d still suggest paying off your debt. However,
savings is more important than ever before. If you don’t have several months
of income in savings, it may be a good idea to pay slightly less than you can
afford (but still more than the required minimum payment) on your debt and put
the rest into savings.
| Savings:
While accounts that
pay you higher interest are nice to have, with rates so low, you won’t
make much with a traditional savings account right now. CD’s
(Certificate’s of Deposit) are wonderful if you have ample savings but
they restrict access to your funds. The most important type of savings to
accumulate right now is easily accessible funds such as traditional savings
accounts or money market accounts. They won’t pay as much interest as a CD
but you’ll be able to access your money if you need it without paying fees
or penalties for early withdrawal.
| Budget:
Since no one can predict how long this financial crisis will last
or just how high our cost of living will become, it’s a great idea to get
a handle on your spending now. Now is not the best time to buy unnecessary
items, especially expensive luxury “wants.” If you are not sure exactly
where all of your money is being spent, it’s an excellent idea to track
your spending. Review your spending categories to see if any can be reduced
and put that money in savings instead. |
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It’s
also a great time to examine any unnecessary expenditures to see if you can find a less expensive solution. Can you cut back on your cable
package or eliminate it altogether? Can you rent fewer movies? What about eating
in more often? Can you downsize your cell phone package or eliminate your home
phone? Can you get out of that gym membership that you never use? Examine every
expense and ask yourself if there is a less expensive alternative.
Since so much is uncertain when it comes to
our financial outlook, the best thing you can do is to insulate yourself from it
as much as possible. Things will get better but it still may be a while. In the
mean time, protect yourself and your family by pumping up your savings and
cutting back on spending. Then instead of panicking at the news of every bank
failure, you can rest assured knowing that you are well positioned to ride out
this financial storm.
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Copyright
© 2008 by Jennifer Wallis. All rights reserved. Want more
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