Must read money article

The recent financial news – banks failing, the Treasury taking over Fannie Mae and Freddie Mac, the stock market dropping several hundred points in one day – may have you feeling a bit helpless when it comes to your finances.

While you may not be able to make the market go back up or keep banks from failing, there are steps you can take to make your finances as strong as possible in these tough times:

1. Fund your emergency fund. It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt. The general rule of thumb is to have three to six months of living expenses set aside for emergencies. You should keep this money in short-term, liquid assets, such as a CD or money market account.

2. Reduce debt. If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt. Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent). Then make the minimum payments on all of your credit cards except the highest interest rate card. Apply as much as possible to the highest interest rate card until it’s paid off, then move to the next highest interest rate card, and so on.

3. Review your spending. I’m always amazed at how many people have no idea where their money is going each month. How can you reach your goals if you don’t know where your money is going? While budgeting is a bad word to most people, it is important that you at least know where your money is going so you can make informed decisions about where your money should go in the future. If you aren’t already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.

4. Increase your retirement contributions. Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down. When the market is down is actually the best time to invest. Remember “buy low, sell high”? Well, the time to buy low is when the market is down! Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.

5. Make sure your money is protected. Your bank accounts are protected by the FDIC, while the SIPC protects your investments in the event that your brokerage company fails. Make sure that none of your accounts are above these limits (generally $100,000 per owner and per bank for FDIC, and $500,000 per account for SIPC).

6. Refinance your mortgage or other debts. Interest rates are at historical lows, so why not take advantage of these low rates to do something good for your checkbook? Remember, you will pay closing costs anytime you refinance, so it’s best to refinance if you expect to be in your home for five years or more and only if you can get your interest rate reduced 0.75-1.0%.

7. Check your credit report at least once a year. With the rise in credit card fraud and identity theft, it’s crucial that you check your credit report periodically. You should check your credit report at least once a year, but 2-3 times per year would be even better. To check your credit report for free (doesn’t include your credit score) go to www.annualcreditreport.com.

8. Review your insurance coverage. Check your car, home, life and health policies to make sure you have the right coverage at the right price. The last thing you want to do in a recession is to incur a financial loss because your insurance isn’t up to date, and you might even save a few dollars by raising your deductible or by discovering discounts that you are entitled to.

9. Invest in yourself. Unless you work for the federal government, tough economic times could mean job layoffs and higher unemployment. Invest in yourself by taking classes to improve your skill sets, or even going back to school to get your degree. The money you spend on your education could make the difference between employment and unemployment, and should pay off in the form of higher salaries over your lifetime.

10. Finally, turn off the news! Unfortunately, the media focuses on the negative news, which only causes concern and panic (it would be different if they gave us the good news too, but the good news is usually buried several pages into the newspaper or website). A CNBC reporter said it best, on one of the many volatile days we’ve experienced this year… “If you’re invested for the long-term, turn off the news, it doesn’t affect you today”.