Difficult economic times continue throughout the first quarter of 2009. Despite recent gains in the stock market, portfolios remain badly damaged by the market performance of the last year and a half. Unemployment is still on the rise and the recession is still a serious concern.
As we wade through these difficult times, you have to think about how to manage your own financial situation. It’s easy to get in a rut, thinking things will never get better. But as history has shown, things do eventually improve.
Hints of bottoming are starting to surface. Oil prices have begun to rise, China is importing aluminum again, and the stimulus plan will start to kick in later this year, creating jobs and, perhaps, helping soothe some of the enormous fears in the marketplace.
There are definitely brighter times ahead. In the meantime, to insure the best financial future for you and your family, you need to find ways to protect and build your assets.
Reduce Your Debt
Too many of us overextended ourselves during the past decade with credit cards and other debt. The first order of business is to reduce this expensive debt, even before saving for retirement or investing in the stock market.
Budget
Thrift is in. Measure exactly what you spend and looking for ways to save money. Perhaps you are eating out more than you should or spending too much on a cup of coffee. Budgeting is a lost discipline for many people and one that should be rediscovered.
Sort out and track your spending and get a sense of where you can make adjustments to save money. If you are just getting started on developing budgeting discipline, talking with others who are doing the same can help make it easier.
Guard Against Inflation
Currently, inflation is a relative nonissue, most experts believe that it won’t become a problem anytime soon. Yet, many things are taking place that could change things in an instant. The federal government is spending nearly $800 billion in stimulus and short-term interest rates, set by the Fed, are essentially at zero and quite low in other countries as well. No one really knows when growth and inflation could come roaring back to life.
Consider investing in Treasury inflation-protected securities, or TIPS. These bonds are backed by the U.S. government and have built-in protections that boost returns to account for inflation. Investing in commodities is another consideration. When growth resumes, demand for oil, copper and other commodities will rise, making their prices increase. Keep in mind, due to the volatility of commodities, financial planners recommend that investors have no more than 5% to 10% of their portfolio in this sector.
Use Smart Stock-Market Strategies
Investors remain leery of the stock market. Consider coming at stocks first through your retirement account. For many of us, that account has a longer time horizon and built-in tax efficiencies, and often comes with a corporate match — which is essentially free money.
Be sure to maintain a diversified approach among stocks, bonds and cash.
Continue Saving for Retirement
In times of turmoil, we tend to focus on what’s right in front of us: the current bills, the savings account and what the day will bring. But we are all still going to want to retire at some point, so that means remaining disciplined about saving for retirement.
Use Common Sense
Much financial turmoil of the recent past has stemmed from an ignorance of common sense. Promises of overabundant returns, gambling in real estate and the stock markets and overspending are all culprits.
Personal finance boils down to common sense. You have to eliminate your high-cost debt and get on a budget. You must save for retirement. And you need to make sure that you own a home you can afford and enjoy. Be prudent, save money, invest wisely. Getting back to these very basics will help all of us rebuild our portfolios and look to a better day.
Source: information provided by The Wall Street Journal
Tags: budgeting, debt reduction, inflation, money management, recession
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