Jeanette A. Tucker | 9/22/2005 9:24:39 PM
The September 11 anniversary, on-going insurgency in Iraq and terrorist attacks in England are markers of uncertain times and reminders of how important it is to have your financial house in order, according to LSU AgCenter family economics professor Dr. Jeanette Tucker.
To help you prepare for uncertain economic times by improving your financial situation, the family economist makes several recommendations.
• Get back to basics. Unnecessary spending causes much financial heartache. Take action to combat tempting situations by recording how you shopped for a period of time. For example, what mood were you in and were you alone? Pondering this information may help you confront some undesirable shopping habits.
• Communicate about money. Talk about money with members of your family and seek their cooperation. Discuss the need to establish spending priorities and set goals. Be sure to include children in your discussions.
• Know where your money goes. Track your expenses for a month or two, and then use this information to develop and follow a realistic spending plan. Setting realistic goals, establishing priorities, communicating and negotiating are essential to developing a workable plan.
• Take stock of your assets. Prepare a simple net worth statement by listing everything you own (assets) and everything you owe (liabilities). Subtract what you owe from your assets to determine your financial net worth on a specific date.
• Pay yourself first. Make saving for an emergency fund a fixed expense. Consider a payroll deduction to make the payment as automatic as possible. Keep this money liquid and safe to provide easy loss without losing principal. After you build three to six months’ expenses in this fund, continue the forced savings habit to reach other short-term goals.
• Reduce insurance costs. Some ways to cut back on insurance costs may include self-insurance (covering common risks through savings); higher deductibles, group plans; annual premium payments and switching to different types of coverage (such as changing form whole-life to term insurance).
• Save for your future. Aim to save 10 percent of your gross pay, although 5 percent to 7 percent may be more realistic for many Americans. Establish the habit of saving regularly, and continue to save over the long haul. Modest sums add up for big future gains, thanks to the magic of compound interest. Automate your savings by arranging to have a portion of each paycheck deposited by payroll deduction. If you don’t see it, you can’t spend it.
• Reduce wants, satisfy needs. Reduce spending on "wants," and concentrate on spending only for "needs." Only you know the difference between luxuries and necessities for you and your family. Some money-saving tips include cutting back on business or job-related lunches and not buying an item that is "on sale" if you don’t need it, can do without it and never intended to buy it before finding it "on sale."
• Examine your credit use. Compare charges for credit cards and other loans (including interest rates and fees) and policies from various lenders. Credit costs vary substantially. Comparison-shopping for credit can save you as much or more as comparing prices of other goods and services.
• Limit your consumer debt obligations to no more than 15 percent to 20 percent of your net pay. Spending 20 percent of your take-home pay on debt repayments is like working one day a week to repay your credit obligations.
• Keep your personal credit record in tip-top condition by making required payments on time. If you haven’t checked your credit report, you are now entitled to a free credit report from each of the three major credit reporting agencies each year. Request your free credit report online at https://www.annualcreditreport.com or by calling 1-877-322-8228.
• Shop for banking/financial services. Like shopping for credit, comparison-shopping for banking and other financial services pays off. Each financial institution sets its own fates and fee structures, and costs vary. To select the best financial institution for you, compare the scope and conditions of services, interest rates and fees charged on various products and types of accounts available.
• Plan for your retirement. Thoroughly investigate your employer’s pension and/or profit sharing plan. Take advantage of 401(k) or 403(b) plans, if offered by your employer. These plans offer federal tax deductions and grow tax deferred. If your employer provides a matching contribution, be sure to contribute at least the amount needed to obtain the maximum match. This is FREE MONEY. If you are self-employed, start a Simplified Employee Pension (SEP) or KEOGH-retirement plan.
• Consider opening an Individual Retirement Account (IRA) to save tax-deferred until retirement. Individuals may contribute $4,000 per year during 2005-2007. If you are over 50, a special catch-up clause allows you to contribute $4,500 in 2005.
• Consult your employer’s human resources office or a financial adviser about retirement benefits. Many plans offer a range of investment options. Get help to select the best option for you.
"There is no better time than the present to conduct a personal financial check-up," Tucker says, adding, "Following these tips can provide the reassurance that your finances are in order and you are prepared for good times and bad."
For more information on family finances and consumer topics, click on the Family and Home link on the LSU AgCenter homepage, at www.lsuagcenter.com. For local information and educational programs, contact an extension agent in your parish LSU AgCenter office.