Smart Money Moves to Make in Tough Times

September 24, 2008

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.

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 until paid off.

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?  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.

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About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.