In today’s turbulent economic times, we can lose 2 percent of our 401(k) value in a day and 5 percent in six months in our homes. The instability requires a solid plan of action to recession proof your life. About 40 percent of economists surveyed today believe a recession is likely in 2008. Here are some tips to help you prepare:
1) Secure any income. If you have income streams, document them and be sure they’re safe for the next few years.
2) Start getting your financial house in a database, literally. Use a money tool such as Quicken or even Excel to help you keep track of things such as mortgage balances and credit card debt. Sometimes seeing how much you are in debt can help curb spending, too.
3) Prioritize your debts. You get an $8,000 tax return, right? You owe $7,500 on your car, so it would be nice to remove that payment. But what if you’re paying 6 percent on your car and 15 percent on your credit card? Even if the $8,000 won’t make much of a difference in your balance, it will make a difference in how much of your money goes to interest each month. Pay the debt that has the highest interest rate first.
4) Transfer balances. Lots of us get balance transfer offers from credit card companies and ignore them. This is easy to do. But simply shifting money from one card to another, even if it buys you six months with no interest, can save thousands in a year.
5) Begin saving if you haven’t already. It’s very easy to feel insecure right now with fluctuating markets.
6) Take stock of your stocks. Figure out what is in your 401(k). Don’t just put it in and forget about it. Look at the balances, rebalance your portfolio, and make sure you are invested wisely for the future. Most investment planners will have you invest based on when you intend to retire or when you need the money.
7) Look for all the tax incentives you can find. There are lots of ways to save money on taxes: 401(k)s, IRAs and some not-so-common savings plans such as college funds and donations. Talk with a tax planner and save your money instead of giving it to Uncle Sam.
8.) Have six months’ worth of savings. In otherwords, if your bills are $3,000 per month, you need a minimum of $18,000 in liquid capital. This should be something secure, like a six or 12-month CD.
9) Get spending under control. Throughout the early 2000s, many were using their homes as ATMs, feeling the market would continue to increase. We know how detrimental that can be. Figure out where your money goes by keeping track of it for two to three months. You will know what you can cut out and where to save some extra money.
This entry was posted on Wednesday, February 20th, 2008 at 11:27 am and is filed under Recession, recession proof. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.2 Responses to “Recession Proof Your Life”
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February 24th, 2008 at 2:23 pm
I recognized this housing bubble a number of years ago and didn’t fall for this subprime mortgage nonsense just like I didn’t put my money into tech stocks in the 1990’s.
We are supposed to be glad that the Federal Reserve is cutting interest rates, but that is a band-aid approach. As long as they can create money out of thin air (counterfeiting) and play games with the economy, these bubbles will continue.
Politics aside, you have made some excellent points. I canceled my one credit card six months ago and I’m looking at putting money into a CD next month.
June 10th, 2008 at 1:35 am
Saving could be the hardest thing to do in these times, but now is the best time to become debt free! Hopefully we will all learn from these perilous economic times, and not get into debt so easily in future.