Life Times Newsletter

Summer 2009
Vol. 11, No. 3




Navigating the 2009 financial crisis: 4 steps to take today


Michael Ravenscraft, MS, CPA
Financial Education Specialist

With our 2009 economy struggling, our jobs, credit and investments are all changing rapidly. Deciding what actions to take may be confusing.
A few simple, but important, steps can get your finances back on track, improve your financial health and get you on the road to long-term success. 

1.    Review your spending habits to make sure your expenses donít exceed your income. If you are out of balance, be creative. Do whatever it takes to increase earnings and cut back on expenses. This is an essential first step to avoiding trouble.

2.    Build your emergency cash fund. You should work toward keeping a minimum of six monthsí worth of household expenses on hand in case of a job loss or other unexpected expense. Itís not enough to rely on available credit; credit limits are being reduced, and interest rates are rising on this type of debt. Take control, and use your own cash.

3.    Tackle your debt balances. While continuing to make payments on all of your debt, make it your priority to pay off the entire balance of your loan or credit card with the highest
interest rate. Repeat this process until you are free of high interest-rate debt. This can seem slow at first, but over time it will make a big impact on improving your finances.

Note: I want to emphasize this important point:  It is essential that you have an emergency fund in place before paying down debt. Once you reduce your balance, there is a chance your credit limit will be reduced as well. Therefore, if you do not establish an emergency fund, you may not have the available credit to fall back on. If a job loss or emergency occurs, you would then have fewer options. Establish the emergency fund first, then pay down the debt balances.

4.   The key to success in your long-term saving and investing is to avoid emotional behavior and stay the course. Stick to your long-term plan. Many of us saving for the long term have witnessed recent, painful investment losses. Downturns are opportunities to buy at lower prices. Do not sell at the bottom just to stop the pain. This would lock in your losses, and you would miss out on the periods of rapid growth that historically follow downturns similar to our current one. If your investments are keeping you awake at night, consider rebalancing your investment mix so that you have a more diversified portfolio with fewer risky investments.  In addition, continue to maximize tax-advantaged accounts and employer matches that may be available.

Use this financial downturn as a positive experience to learn about yourself and your habits, and to examine your past behavior. This is your wake-up call to get back on track and ensure future success by spending less, saving more, reducing debt and investing for the long term.



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