Financial Security in Tough Times

First, don’t panic. Investments can fluctuate day to day and it is important NOT to panic when the stock market drops in connection with a national crisis. Regardless of what shape your bank is in, if your deposits are within FDIC insured limits your savings are safe.

What do “experts” advise? (B. O’Neill, PhD, CFP, Rutgers University; J. Tucker, PhD, RFG, LSU)

1. Spend less than you earn and avoid debt. What are some signs that debt has become a problem? You’d have an immediate financial crisis if you lost your job. You spend more than you earn. You must borrow to pay current bills. You pay for everyday expenses, like groceries, with savings or credit. You pay the minimum or less on your bills each month. You are being contacted by bill collectors. You’re having problems in your relationships because of money.

2. Plan ahead. Calculate the savings required to achieve future financial goals like home ownership or retirement, and save and invest regularly to achieve your goals. Research shows that, at every income level, people who plan are more financially successful.

3. Follow recommended practices. Prepare a will, have an emergency fund, calculate your net worth periodically: follow a spending plan or budget, write down your financial goals with target dates and dollar cost, and don’t buy more house than you can afford.

4. Build and maintain your human capital. Keep your job skills current. Go back to school. Practice good health habits. Eat right and get adequate sleep and exercise.

5. Make compound interest work for you. Invest early and often, particularly in tax-free or tax-deferred investments, where income tax is not owed or can be postponed. Avoid making minimum payments on credit cards.

6. Save and invest regularly. Invest in stocks or mutual funds at regular intervals. Make deposits to employers’ savings plans (401Ks) to earn the maximum available match.

7. Have a personal asset allocation strategy, based on your investment risk tolerance level and financial goals time frame, and stick with it. Asset allocation is how you divide your portfolio among stocks, bonds, real estate and cash assets. Know your risk tolerance level:

8. Keep your investment portfolio diversified to mitigate risk. For example, with stocks, invest in large and small, foreign and domestic companies, or mutual funds which are already diversified to protect you from losses due to declines in a certain type of investment or industry sector.

9. Buy low and sell high. Although it is a fundamental principle, many people panic and do the opposite during declining markets. Keep making your regular deposits regardless of the market.

10. Be aware and careful. What’s good for the economy may not be good for you personally.

Sugato Chakravarty, PhD, Purdue University, studies psychological factors involved in personal finance. His research suggests that the less we handle our money, the more removed we are from it, the more out-of-control it can become. In other words, the more we disconnect with handling our money by using debit and credit cards, direct deposit, automatic bill pay, etc., the more risks we tend to take with our finances. The more we touch it and work with it, the better/more carefully we take care of it. His advice is to get intimate with your money –real hands-on, to reduce risky and costly financial behavior. Also, protect your financial identity from theft. Check your credit record (for free) periodically:

Gloria T. Nye
PhD LSU AgCenter
St. Martin Parish

11/11/2008 1:25:19 AM
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