Wednesday, October 1, 2008

Preparing for a financial storm

These have been tumultuous days for our financial markets and our economy.  Many economists are convinced that we are heading into a recession.  Some are even talking about a slowdown of the same order as the Great Depression.  The truth is, nobody can accurately predict what our economy and our financial markets will do.  But, there are steps that you can take to prepare for the future.  These recommendations will not only prepare you for rough times; they will help prepare you for any economy and are smart moves to make regardless of what happens in our economy or financial markets.

Here are five smart moves to make right now:
  1. Build up your emergency cash reserves.  Make sure that you have enough money on hand to carry you through tough times.  What if you or your spouse is laid off?  What if the gas bills and food bills keep going up and your income does not?  The more cash that you have set aside, the better position you will be in to handle whatever life throws at you.
  2. Pay off your debt.  If you have credit card debt, pay it off.  Pay off your student loans.  Pay off your car loans.  The less debt you have, the more control you have over your financial situation.  Remember, debt is a fancy term for spending tomorrow's income today.  If you have already spent your future income, it gives you far less financial flexibility in the future.
  3. Make sure that you and your family have enough life insurance.  It is devastating to lose a loved one.  It is even worse to lose a loved one and be in a financial bind because of it. Don't let this happen to you.
  4. Keep up your retirement savings, education savings, and everything else that you are saving for.  If you can, increase your savings.  Nobody knows when the stock market will hit bottom.  However, we do know for certain that stocks are a better value this month than they were last month.  Take advantage of it.
  5. Make sure that your investments are exposing you to the right amount of risk.  If you are saving for a goal that is less than 10 years away, then that money probably shouldn't be in the stock market.  If you are saving for something more then ten years away, then you can afford losses in the short term.  If your investments are exposing you to too much or too little risk, realign them.  (But be sure to remember that your retirement savings deadline is a moving target.  You will not cash in all your investments on the day you retire.  You will need some of the right away, but some of them you will not use for 10, 20 or more years after you retire.)
These five steps will help you be in control of your finances regardless of what the economy does.  By taking these steps, you will position yourself for good markets, bad markets and everything in between.  If you have not addressed all of these issues then do it now. 


Andy said...

Great tips here that are even more important to follow in today's economy.

Param said...

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