Your Personal Rescue Plan

by | Jan 9, 2009 | Cash Flow, Weekly Column | 1 comment

rescue-plan.jpgIt isn’t a “bailout,” folks. It’s a “rescue plan.” Presumably, we the taxpayers are supposed to feel better if we’re spending our money rescuing huge companies from their mistakes rather than bailing them out from their misjudgments.

But regardless of what it’s called, no government program, investment, or handout is going to fix this economy any time soon. What it’s going to take to turn the US economy around and rebuild our shrinking portfolios is a change in the economic behavior of Americans.

It’s time to tighten our belts. We need to work a little harder, spend a lot less than we earn, and save a lot more. Our national savings rate is minus .5%, an obvious recipe for the economic tsunami we are living in today. For ten years or more, financial experts have warned us to stop mortgaging our futures with excessive debt. We chose not to listen. Now that change is going to happen—the hard way.

The “help” from the government’s effort to get us out of this crisis is going to add to our future economic problems. That help will probably be massive, given the new tendency of the country to lean toward socialism. We will probably face rising inflation, plus higher taxes, which will shrink the buying power of our incomes. This is not a pretty picture.

Neither is it a recipe for panic. Instead of relying on a government bailout and sitting passively by to wait for take-control.jpgtimes to get better, it’s time for each of us to take control of our own financial future. There are some things we can do to protect ourselves and get through hard times until conditions improve. One of the most powerful ways to deal with economic fears is to take action. You can create your own “personal economic rescue plan.”

Here are some steps you can take.

1. Become conscious of your spending. For a two-week period, write down everything you spend so you know where your money goes and have a better idea where you can save. Then create a written spending plan. You can find budgeting tools at www.mint.com, www.quicken.com, and http://www.consciousfinance.com

2. Keep your job or get a job. If you’re close to retirement, extend another year or two if at all possible. If you are retired, consider picking up some extra money with a part-time job.

3. Update and review your retirement and cash flow plan. Find out how the market drop has affected the probability of your nest egg lasting your lifetime.

4. If you’re retired and working is not an option, cut your current withdrawals from your portfolio by 10% immediately.

5. If you have to choose between funding your child’s college fund plan or your retirement plan, fund your retirement plan.

6. Don’t sell out of the market or an asset class that you are “sure” is going to continue to decline.

7. Don’t give in to timing the markets. It’s a loser’s game. Instead, continue to rebalance your portfolio.

8. If you are retired, have one year of cash needs in your checking or money market account.

9. If you are consumed with fear and anxiety around your money, get some help. Find a financial therapist and a financial planner who practices an integrated approach to financial planning.

10. Become more conscious of what is most important in your life. For most of us, that means family, friends, and health.

all-in-same-boat.jpgRemember, we are all in this boat together. We can learn from the mistakes of the past, rise to the challenge of the present, and build a healthier financial future.

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