Weathering Tough Financial Times: 9 Tips for 2009

The financial crisis of 2008 battered the wallets of many Americans, leaving them unable to make ends meet. While saving and investing may be difficult, it’s critical to weathering tough financial times. These nine tips can help:

 

1. Pay down credit card debt. Banks are increasing interest rates and late fees and reducing credit limits on credit cards. That means higher borrowing costs. Lower credit limits can also mean lower credit scores if you don’t pay down your credit card balances. Read more about dealing with credit card debt.
   
   
2. Check your credit report. With credit becoming harder to get, make sure your credit history is accurate—and correct problems that may hurt your credit score. For your free credit report, call (877) 322-8228 or visit www.annualcreditreport.com.
   
   
3. Create a rainy day fund. One in three Americans has no emergency savings. Aim for at least one month (preferably three to six months) of your current salary in an insured savings account. Don’t touch it unless absolutely necessary. Learn how to create a rainy day fund.
   
   
4. Avoid raiding your 401(k). One in five workers over age 45 stopped saving for retirement in 2008 because of economic conditions. Before cutting contributions or borrowing from your workplace retirement plan, reduce spending wherever possible. Read more about how to weather tough financial times.
   
   
5. Diversify. Particularly if your portfolio declined more than broad market indices, make sure you are well diversified. Spread your risk by spreading your investments both among different asset classes—meaning stocks, bonds and cash—and within each asset class. Read more about managing your investment risk.
   
   
6. Open account statements. When markets are volatile—and especially during a bear market—you may be tempted to avoid the trauma of seeing losses in your portfolio by ignoring your 401(k), IRA, mutual fund or brokerage account statements. But doing so can blind you to problems in your accounts other than performance. Learn more about bearing up in a bear market.
   
   
7. Know that fees matter. Find out what each investment costs. With mutual funds, for example, the higher the fees and expenses, the less real return you make. Compare the impact of fees and expenses on mutual funds, Exchange Traded Funds (ETFs), and Exchange Traded Notes (ETNs) using FINRA’s Fund Analyzer.
   
   
8. Protect yourself against identity theft. Virtually any news item, positive or negative, can become a "hook" for a new scam—and the current turmoil in global financial markets is no exception. Phishing attacks surged in October 2008 by 103 percent following stock market drops. These spams often exploited news of bank failures as a hook to obtain personal information. To avoid taking the bait, visit FINRA’s Identity Theft resource center.
   
   
9. Invest for the long term. Investors with a short-term outlook often jump ship just as a bear market bottoms out or jump in as a bull market peaks. Instead of panicking or trying to time the market, focus on the long term. Investing incrementally, in good times and bad, is a tried and true way of bearing up in a bear market. Read more about investing for the long term.

 

Even if you were not thinking about saving and investing when the clock struck midnight on New Year’s Eve, it’s not too late to set fresh financial goals for 2009. Take time to make a long-term financial plan—and stick with it. Many investors feel pinched these days—and may be more willing to take risky measures to make ends meet. But it’s important not to panic. Staying diversified, understanding risk and reducing debt are the best ways to manage your finances during uncertain times.