What To Do In These Uncertain Financial Times

The housing crisis. The stock market plunge. The banking industry in shambles. What’s a person to do in the midst of all this financial turmoil? We thought we’d offer our suggestions for making it through the rough waters many of us are facing:

1. Don’t panic/worry. It’s not going to do you any good at best and at worst it can lead you to make some very poor financial moves.

2. Learn from what’s going on. How would you have liked to have had all your retirement savings in Lehman Brothers stock? Key learning: diversify. If you have a large percentage of your portfolio in any single company, especially your employer’s stock, you’re taking on a big risk. Spread your money out and you’ll be much better protected.

3. Focus on your career. Your career is your single biggest financial asset. As long as it’s going strong, you have a very reliable safety net in your earning potential. Take some opportunities to improve your earning power/marketability/job security by attending a seminar or two, volunteering for a new project that adds to your experience base and delivers needed results for your employer, and networking with others just in case a change is needed. Making yourself a better, more marketable employee is never a bad decision — and these days it’s one solid investment you can bank on.

4. Increase your emergency fund. Having a bit more financial cushion is a good idea these days. To save more, consider cutting spending where you can. Funny how a simple, innocent purchase in good times seems very frivolous these days. It’s a cliché, but that twice-daily latte that runs you $8 total adds up to almost $3,000 a year. Is coffee really that important to you or would you rather be a bit more financially secure? Maybe it’s not coffee for you and there’s certainly no reason to eliminate all of life’s pleasures, but there are areas of spending we all have that can be cut back a bit and not really cramp our styles much.

5. Keep investing. Yes, the stock market has been brutal of late. That’s the bad news. The good news is that stocks are as low as they have been in some time. It’s a great buying opportunity if you have ten or more years before you need the money. Prices may go down further in weeks and months to come (no one knows for sure), but if history is any indication, you’ll do very well if you can hold out for a decade or two. 401(k)s are especially good investments. Look at it this way: even with the big losses in the stock market, you’re still ahead of the game if you get free money from your employers’ 401(k) match.

Those are a few of our tips. What would you add to the list?

FREE MONEY FINANCE

(Photo: Kevin Dean)

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  1. Norcross says:

    Here’s another one: stop living above your means. You don’t need a $35,000 car, or the 3rd flat-panel TV.

    • battra92 says:

      I find it kind of interesting that the stock market goes down a lot the very week my 401K is starting. Good luck for me I guess. :P

      @Norcross: Sometimes the wisest advice is the most simple. I wonder why this is so hard to do.

      As far as the career thing goes my friend told me last night that maybe I should look into being a financial counselor (as in teach people to budget.) Somehow I think it would be less rewarding than being in the soulless IT world.

    • BoomerFive says:

      @Norcross: Obvious but so true. Think in terms of need rather than want. The cool thing is that when times like these come around, America comes out stronger and smarter on the other side. Let’s hope this is no exception.

    • Shadowman615 says:

      @Norcross: Every person with a $35,000 car is not necessarily living above their means.

      • Erwos says:

        @Shadowman615: Yes, and we should take all of their money, because we need it more than they do. 100% taxes on any amount more than 50k a year. If they lose their house, well, they shouldn’t have bought such an expensive one. They were probably going to be foreclosed on anyways. THINK OF THE MIDDLE CLASS!

        It’s us vs them, clearly!

        • dangermike says:

          @Erwos: I hate to break the news to you, but 50/year isn’t quite up to middle class standards these days. Hell, it’s practically poverty with a nice car.

          • @dangermike: Amen.

          • teh says:

            @dangermike: Taken from wikipedia: In 2007, the median annual household income rose 1.3% to $50,233.00 according to the Census Bureau.

            If the median income isn’t middle class, what is?

            • randomangela47 says:

              @teh: Depends on where you live. In happy little midwestern college town, I pay under $600/month for a 1350 sq ft, 3 bedroom duplex… Somehow I don’t think I want to know how much I would have to pay for this amount of space (in a safe neighborhood, no less) in any of the major East Coast or West Coast cities…

              Here, $50k/year would be solidly middle class. Not so much in some other areas.

              • pecan 3.14159265 says:

                @randomangela47: My rent is $1,800 for a two bedroom, two full bath condo with a garage. In northern Virginia.

              • dmband9 says:

                @randomangela47: My rent is $2200 a month for a 1 br/ 1 bath in Manhattan Beach, CA. I think this further proves the point that there can be no set terms on middle class. Everything is relative.

                By the way, I would never move. I’m happy to pay that kind of premium to live two blocks from the beach.

            • RStewie says:

              @teh: Median Income and “middle class” are absolutely not the same.

              Median Income: the average income of the average US family. So that means that roughly 50% of the population makes less than you, and 50% makes more than you, annually.

              Middle Class: a person/family of moderate economic independence and little to no social influence. So that’s a person/family that can afford a house, along with the attendant bills, a car, and still have some money left over for spending/saving.

              • johnva says:

                @RStewie: Median income is not the same as average income. For at least several years of the Bush Administration, average household income rose while median income declined. This is possible because changes in income were not distributed uniformly (in other words, the rich got richer faster than everyone else got richer). This is also why it “felt” like the economy sucked for several years for many people despite the numbers showing good growth, etc on their face. Don’t mean to be pedantic, but I think it’s important to be careful with terminology when using these words that have precise mathematical meanings.

                • Scoobatz says:

                  @johnva: Excellent point. A lot of people use the terms median and average interchangeably, which is incorrect. As a (slightly outdated) example, the median income in 2004 was $43,000 while the average was $60,000. The median income statistic does not account for the large disparity of wealth in our country.

                • RStewie says:

                  @johnva: My bad. I was too lazy to verify that median does, in fact, mean average, when it is actually “mean”. But you are correct, and, to build on the point, the spread is only going to get wider.

                  • johnva says:

                    @RStewie: The relationship between mean and median income might be a decent way of determining how to raise tax rates in a progressive tax system. If the mean income is rising much faster than median income, then maybe that means the tax system needs to be made more progressive (in other words, a tax increase on the rich and/or a tax cut on lower income earners). It seems to me that this should be a signal that we’ve cut taxes on the rich too much, because it means that wealth disparity is INCREASING.

              • ARP says:

                @RStewie: I think the problem with your definition of middle class is that it shifts and doesn’t show our current economic realities.

                So, lets take a “middle class” family using your definition from three years ago. Now take that same family and put them in the present. They got a small bump in salary (consistent with our economy). However, due to rising costs, they don’t have spending money left over, can barely afford their house, car, and bills, etc. So they’re no longer middle class, even though their salaries were considered middle class a few years ago. So that doesn’t make sense to me. I hope you see what I’m getting at. Right now, only what used to be the wealthy(ier) are considered middle class by your definition.

            • LINIS says:

              @teh: I would say the mean income would be a better measure considering the gap in distribution of wealth has widened in recent years…

          • johnva says:

            @dangermike: While I don’t disagree with your point, if you have a “nice car”, then you’re not living in poverty. You’re just living above your means.

            Like I said the other day, I cannot for the life of me understand why people are willing to pay so much money for a car, especially when they really have to stretch their income to do it. For me, a car is utilitarian transportation, and everything else is secondary. I mean, it’s nice to have a fancy car, but it’s by no means necessary. Similarly, a fancy house is nice to have, but not necessary.

            • balthisar says:

              @johnva: Why the “especially when they really have to stretch their income” part? That’s a no brainer, but it sounds like you have problems with people having nice things even when they can easily be afforded. If your income suddenly shot up to $100,000 a year, are you saying you wouldn’t replace your carpet, or get a nicer house, or a more reliable car, or a safer neighborhood?

              • johnva says:

                @balthisar: No. I think you’re misreading me. I have no problem with people who can afford it buying nice things. I’m saying that you’re not really poor if you can afford a nice car or a fancy house, and I’m saying that those two items are behind a lot of the stories where people making decent income are still living paycheck to paycheck…and if that’s the case, you can’t afford it. Economic security comes first, in my opinion, and THEN nice things.

                Mainly, I was just taking issue that $50K/year is near “poverty” with a nice car. The people who are actually in serious poverty in America don’t have cars.

              • ARP says:

                @balthisar: I don’t think he has a problem with people having nice things. I think that johnva’s personal economic philosophy is that paying more for certain things doesn’t make sense. I think many of us have that philosophy on certain things. For example, I don’t buy expensive socks. Even if I became a millionare, I still wouldn’t buy expensive socks. I’m guessing the johnva feels that way about cars. I’m not as militant as johnva, but I wouldn’t buy a super-expensive car either, especially living in a city. I’d rather use the money to travel, eat out, etc.

                • johnva says:

                  @ARP: Exactly. I’m pretty much a very pragmatic, utilitarian person. I don’t care that much for buying fancy “things” that aren’t really of practical use to me. Like you, I much prefer to have fun, memorable experiences with people I enjoy being around. I sometimes do feel a bit odd in this country, because I just don’t care about acquiring a lot of material things. Economic security is much more important to me.

                  And I also think it’s important to keep perspective on what’s really important. Luxury cars and houses – not important, in the long run. Having a roof over your head, and having enough to eat – priceless.

          • Erwos says:

            @dangermike: I hate to break the news to you, but that was the most sarcastic thing I’ve written. I’m a Libertarian – I hardly believe in taxes in the first place.

            @mangr3n: The gold standard as a market stabilizer is a complete joke. The US was on it for quite a while, and the market volatility during the 1800s was _extreme_. The dollar is backed by the productivity and the guns of the USA – and they have rather a lot of both.

            • mangr3n says:

              @Erwos:
              Where are you getting your data on the 1800s?

              Using the Inflation Calculator $10 would buy in 1800 what $4.89 would buy you in 1899. That’s deflation… In real terms, the gold supply inflates at a relatively low and steady rate, due to mining. However, over that 100 year period the quantity of goods and services available increased at a higher rate. Net result, prices drop as long as wages did not decrease by an amount larger than the deflation rate you have an increased standard of living. That’s how commodity based money works naturally.

              Please explain market volatility in the 1800s being a joke? Are you sure that the gold standard was the cause of said instability? First describe the instability and then please point out the logic that ties it to the gold standard?

              I’d encourage people to read about the Continental Dollar. Additional interesting reading would be on Inflation

              In particular, the statement there that:
              “It has been argued that using inflation accounting under International Accounting Standard 29[20] between 2005-2008 the world reserve currency, the US$, is in hyperinflation[21] using gold as the base currency.”

              Basically I’m simply arguing that when you diversify, include real property that can’t simply evaporate due to companies folding, hyperinflation of the dollar. There are sound reasons to do so. No reason not to think about it, and read about it.

        • ajhidell says:

          @Erwos:

          I assume you were being facetious in your comment. If not, it is just plain stupid.

        • freelunch says:

          @Erwos: so… explain to me how in the world you would justify taxing any income over 50k at a 100% rate?
          Since my starting salary out of college was 50k, what you are saying is that I should have no incentive to work hard to earn a raise or promotion, since there would be absolutely no reward…… do people really think about the words that come out of their mouth?

          • @freelunch: Sarcasm detector… on!

            Seriously, though, first comment was the best one – very few of us “need” more than a fraction of what we have. You can almost always find ways to cut back. How you save your money is far less important than just saving it in the first place.

            Oh, and never ever trust anything anyone in the retail financial or real estate business tells you. How can you tell that they are lying? Their lips are moving.

      • KyleOrton says:

        @Shadowman615: True, but we’re talking about what to do when one’s means could be dropping significantly. Most people looking into a $35,000 car could make a relatively easy decision to live below their (current) means and buy a cheaper car. Remember, Warren Buffet drives a fairly unremarkable Cadillac.

        The $35,000 car example was generous. It’s way too easy to find a car that costs twice that much nowadays.

        • battra92 says:

          @KyleOrton: The DTS is nothing to call unremarkable. True it’s not a Rolls or a Bentley but there are reasons why rich people are rich and why many in the “new money” like Hollywood or music “stars” end up broke.

          @johnva: Similarly, a fancy house is nice to have, but not necessary.

          It’s not so much the house for many people I find, it’s the neighborhood. I could buy a foreclosed house in Detroit for what I earned today at work but would I seriously want to live there? Of course not.

          @IHaveAFreezeRay: $1,800 in Western MA would buy a lot. Heck in Southern VT you can get an acre of land, 3 floor cape, 1.5 baths and up to 5 bedrooms for $80K. Honestly, I wish I had the cash for a down payment and it wasn’t so far from work.

          • KyleOrton says:

            @battra92: Yeah, I meant it to be a positive example. I meant unremarkable literally. There’s nothing wrong with the DTS, but has a friend ever called up and said “Dude, I just saw a DTS!”

            My point was, stand in a wealthy neighborhood and count Porsches, Mercedes, 5/7 series BMWs etc and EVERY ONE of those people has less cash than Warren. Most of them, a LOT LESS.

      • @Shadowman615:
        But everyone with a $35000 car isn’t making the wisest decision. Is it such a kick in the nads to purchase something more fuel efficient, smaller, and cheaper? I strongly agree with Norcross.

      • Norcross says:

        @Shadowman615: understood. and there are plenty of people who can easily afford it, and much more. but if you can easily afford a $35,000 car, a mortgage, utilities, etc, and still have enough cash on hand for 6 months worth of above mentioned expenses, then most of the financial ‘crisis’ isn’t directly affecting you.

        unless you’re a banker / broker. then you’re screwed.

  2. Nixi says:

    It seems when its time to tighten our belts, the charities get hit first. I figure if I have enough left over in a month to still see Pineapple Express and buy Force Unleashed, then I should donate to a worthwhile cause.

    It helps me to realize my situation is not as bad as it could be.

    Besides, what goes around comes around.

  3. I also like to remind myself of this philosophy: One can only cut down on expenses a finite amount, but one’s earning potential is infinite. So if need be, get a second job or find another way to honestly/ethically/legally earn more money.

  4. resonanteye says:

    there’s always free cheddar in a mousetrap. The best thing to take away from all this is that if it sounds too good to be true, it is.

    I’m waiting another few months to jump into some stocks. I want to see more of the other vultures start eating before I start picking at the bones.

  5. shoegazer says:

    Keep your resume up to date and polished. NO amount of seminars or projects will protect you from a top-down bloodbath restructuring.

  6. KatieKate93 says:

    Turn a hobby into a source of income. Write a book on the subject you know best. Create something useful or artistic and sell it.

    These are just the sort of times that catalyze the innovative among us.

  7. Erwos says:

    Stocks are only a great buying opportunity if they go up in value eventually. If the company goes bankrupt, you’re never going to recover that money. Given that some market stalwarts just bit the big one, I’d find that to be a significant factor in any investment decision.

  8. 4ster says:

    Well said, Nixi.

  9. humphrmi says:

    From the article:

    She asks [clients] to calculate their monthly expenses – from Botox shots to country club fees – and their monthly income from work and investments. Then she has them cut 10 or 20 percent off the income figure

    This is a great idea! Let’s see how much it saves me:

    Botox shots, now: $0
    minus 20%: $0

    Country Club Fees, now: $0
    minus 20%: $0

    Total savings: $0

  10. enm4r says:

    even with the big losses in the stock market, you’re still ahead of the game if you get free money from your employers’ 401(k) match.

    Really? My 5% match doesn’t come near my 15% loss in 401k this year.

    I think investing is a decision each individual needs to make, there is no cut and dry rule. I’m putting everything I can into the market but I’m fairly risk averse and don’t need the money for years to come.

    If the financial “crisis” is actually making you think about daily decisions, suggesting that you keep investing is probably the last thing I would advise.

    • Berz says:

      @enm4r:

      Agreed. I get a 6% match in company stock, which really doesn’t help that our stock has tanked lately and my 401k as of this morning is down 20% ytd.

      Though i have a very long way to retirement so I’m going to ride it out and hope for the best.

    • johnva says:

      @enm4r: That’s a paper loss, of course. It’s irrelevant unless you need to retire soon.

    • sir_eccles says:

      @enm4r: You’re ahead of the game because your 401(k) contributions are made before tax.

    • FMF says:

      @enm4r:

      You’re right — if that’s your match. But most 401ks are well above a 5% match (at least at some level.)

      • Jevia says:

        @FMF: Are you sure most have more than 5% matching on a 401k? My husband and I have never worked for an employer that even matched 5%, generally they were between 3 and 4%, and that much only if the employee was contributing double.

        Again with the ‘cut out the latte’ bit as advice on cutting expenses. I don’t know anyone that ever drank 1 latte a day, let alone 2. Most I know bought a starbucks maybe once a week. but I suppose this advice is to be expected when there’s not much else one could cut.

        On the medium income equals middle class bit, so much depends on where you live. $50,000 might well be middle class in many parts of the US, but not in most large cities. The median income can also be deceptive when that same article points out that the top 6% earned 1/3 of all income. Middle class is also generally referred to as a range of income, such as from $35,000 to $100,000.

        • RemmoSi says:

          @Jevia:

          If you contribute 8% of you salary into a 401k and your employer puts in 4%, then you have a 50% match. If you put in 5% and your employer puts in 5%, then you have a 100% match up to 5% of your salary.

          @enm4r:

          I’m assuming you misspoke and meant that your employer puts in 5% of your salary and not matches 5% of your contributions. I’ll also assume that you put in 10% and your employer puts in 5% (which is a 50% match, not a 5% one).

          With no match, if your contributions are $10k and you lost 15%, you now have $8500. With your match, the company puts in $5k with your $10k, giving you $15k contributions. A 15% loss gives you $12,750.

          Note that you would have needed a 27.5% gain on your own contributions to get to where the company match and a 15% loss got you. This is why it’s always a good idea to get the full match.

    • eeefresh says:

      @enm4r: Depending on how you have allocated your investments and when you plan on retiring, the drop in the stock market could actually help you in the long run.

      If you are like me and have 20+ years to retirement, you could invest in an index fund and buy stocks now while they are cheap (and growing cheaper by the day.) You would essentially be buying these stocks when they are on sale.

      Eventually the market will recover, and you will have a greater profit. You can then can gradually move your funds into less volatile investments as you get closer to retirement.

      The only potential flaw I see with this plan is if the entire U.S. economy collapses, in which case you will probably have bigger issues to worry about than retirement.

    • LINIS says:

      @enm4r: Well, actually it does, because the “5%” refers to the portion of your entire pay that is matched. Essentially, depending on what your match is (ie, 50% or 100%) is what should be compared to your 15% loss.

      Do the math and rethink your answer.

    • enm4r says:

      @enm4r: You should not post while hosting conference calls. You’ll end up sounding like an idiot for making simple math errors and corrected by numerous other people. PS, don’t tell any of them you work in finance.

  11. mangr3n says:

    The dollar is in real danger, it’s not backed by real money (gold, silver, etc.). When you diversify, make sure some of your investments are in physical commodities that won’t just disappear. From 2003 to today you would have realized an almost 100% return on an investment in Gold or Oil.

    Historically, paper money not backed by real commodities fail. Research it. This includes the original US Currency created by the Continental Congress. That failing is in fact what lead to a Gold backed Dollar when the US was formed. Point being diversify, make sure some of your investment portfolio is in real assets. Gold, silver, real estate, etc.

  12. frodo_35 says:

    Pay off your debts.

  13. Mr_Human says:

    I might have picked the wrong time to buy a house!

    • frodo_35 says:

      @Mr_Human:You gotta live somewhere. Better to pay a mortage then rent anyday. Plus housing prices are down now

    • Erwos says:

      @Mr_Human: You picked the right time to get a loan. Ever see what serious deflation does to the lending market? I haven’t – pretty much none of us have. We weren’t alive during any depressions. But I’ve heard it’s pretty nasty.

  14. Landru says:

    “Look at it this way: even with the big losses in the stock market, you’re still ahead of the game if you get free money from your employers’ 401(k) match.”

    ???? What kind of logic is this?

    Matching funds are part of your compensation, as much as your paycheck or health insurance. Don’t worry, just keep putting money in?

  15. debiangnu says:

    “The few who understand the system (interest-bearing notes) will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting the system is inimical to their interests.”
    federal reserve non government bank . that taxes us for fake printed money , backed by nothing but trees

  16. AndyFromTucson says:

    Here is what I have never understood about tip 5 (the stock market is a good place to invest if you don’t need the money for ten years). Lets say I invest money I don’t need for 10 years, and then 10 years later, when I need the money, the market just happens to be starting in a prolonged bad patch and I have to sell my stocks at a loss (Not so hypothetical for people who bought stocks in 1999 and need the money today). There have been a few flat or down periods for the stock market that have lasted for quite a few years (1968-1980 for one plus the one we are working on now). So maybe you should not invest money in the stock market if you will ever need to pull that money out in any particular timeframe? And who knows when they may suddenly need to draw on their assets (disability of wage earner or family member, someone charged with a serious crime, uninsured illness, etc) and be forced to sell stocks at a loss during a down period?

  17. Apeweek says:

    I have a problem with number 5. Somehow, we ALWAYS get the advice to “keep buying”.

    That was good advice in the 90s. It’s not now. Take a look at a very long-term chart of the stock market – one that goes back to the great depression. You’ll see that after the really major downturns, like the one we’re in now, getting your money back from the market can take DECADES. My horizon is not that long, and unless you’re a teenager right now, yours probably isn’t either.

    Some better ideas: buy tangible things, like art, collectibles, or small businesses. You might even look at the loads of bargains out there in real estate, which will recover a lot sooner than the stock market will. Real-world objects have the advantage of being intrinsically valuable – they will still have worth even if the whole economy, or the dollar collapses.

    If you want to play the market, use a trading system (one that has a track record) to choose entry and exit points. The last time I had a stock timing system discussion on this site, three free trading systems were discussed: tradewhen.com, sniper.at, and a simple 20-50 week moving average system that is easy to calculate even without a computer. All three of these systems correctly called a market exit before this week’s crash.

  18. kingofallcosmos says:

    6. Don’t get laid off.

    My wife and I are doing fine at the moment because we still have her job and I have always believed in building up savings, but I was laid off months ago and jobs are disappearing left and right.

  19. QuiteSpunky says:

    7. Correspondence Courses

  20. Ixnayer says:

    Take all your money to a casino, put it on red or black. That way you have a 50/50 shot at being rich or being broke. Where else can you get those odds?

  21. Ixnayer says:

    I forgot about the zeros, still good odds.

  22. itslittlejohn says:

    I think smart investing is ultimately the way to go…and not just when you’re on a tight budget… “for it is it in times like these that we come to realize there have always been times like these.”

    But seriously. Currency trading will always be a smart move if you learn how to do it. If one market is taking… then there’s money to be made… if its rising… there’s money to be made. There’s so many options out there, people just have to find their nitch and go for it.

  23. Joe White says:

    Number five… This is an area where I disagree significantly. I am not a fan of the stock market. They tout long term returns (10 years or more) in the stock market as some sort of a sure thing. If you believe that, look at the performance over the last 10 years. Add in inflation, taxes, management fees, etc. and your portfolio will be about 40% lower.

    Consider this as an alternative. A minimum of 25% of your portfolio, assets, net worth should be in some form of guaranteed investment. I am less concerned about the return on investment here and want principal protection that guarantees the return “of investment.”

    Up to 25% of your portfolio, assets, net worth should be invested in real estate. Evaluate this as the actual cash you have in the investment – not the asset value. Add to this an intelligent ongoing refinance strategy and your net worth will zoom. This is the fuel of your overall rate of return.

    Up to 10% of your net worth should be in alternative investments like antiques, art, gold, stamp collections, coin collections, etc.

    The remaining should be invested in the stock market to the extent that you have to. I believe that is the matching component of your 401(k) or 403(b). Beyond that, I tend to favor the use of indexed universal life insurance products that are maximally overfunded. I tend to believe in the suggestions of Douglas Andrew in his New York Times best seller “Missed Fortune 101.”

    This approach will consistently produce much better long term results. Investing in single family rentals that you have managed by a professional property manager is a real secret.

  24. hapless says:

    $35,000 is not that much for a car anymore. Inflation is crazy these days.

    The median automobile price in the U.S. is $25,632.

    It wasn’t too long ago that $25k was a luxury car. Now it’s a modestly equipped midsize sedan.