Be smart with your money
During stressful economic times, it’s easy to get nervous about your savings. But there are steps you can take to protect your nest egg and keep your future plans on track.
1. Don’t panic.
Joe Book, financial planning associate for Itasca Bank in Itasca, Ill., advises against overreacting to any turbulence in the economy or financial markets.
“Don’t make any snap decisions because of one bad day for the markets,” he said. “Just stick with your existing financial plan.”
2. Continue saving.
Book suggests treating yourself as
a bill to make sure you put aside a predetermined amount on a regular basis.
“Whether it’s $20 a week or $50 a month, include it in your budget along with your other bills,” he said.
3. Understand your investments.
Jeffrey Martin, financial adviser and Ameriprise franchisee owner, suggests sitting with a financial adviser to make sure you understand how your money is being invested.
“Many people are just blindly putting money away in plans like 401(k)s,” Martin said. “If you see your accounts are dropping, funds might not be allocated properly.”
4. Know your goals.
Martin advises you know exactly what your financial goals are, how
much you need to save and the
timeframe you have to work with.
“Then you’ll understand how you’re doing in this market relative to your goals,” he said.
5. Don’t rely on the Dow.
“Even if the market is down 20 percent, your plan might only be down 9 percent,” Martin said. And if you can limit your losses to around 9 percent, you can get that back within a year or two, he added.
The Dow Jones consists of only 30 companies, Martin said. Therefore, “know what you’re invested in,” he added. “Don’t just look at the Dow Jones.”
Make your money work for you
Financial planners earn their living by advising others on how to be smart with their money. Whether the economy is in good times or bad, here are a few tips professionals offer to make the most of your funds:
Have a plan and stick with it “Tell an adviser what you want to accomplish,” says Joe Book, financial planning adviser with Itasca Bank, Itasca, Ill.
Have a budget Book suggests planning out what you can afford, making sure to allocate money to savings.
Know where you’re money is If you already have investment accounts, make sure you understand what you’re invested in.
Get a second opinion “Ask questions,” Book said. “And there’s nothing wrong with sitting down with more than one financial adviser.” Jeffrey Martin, financial adviser and Ameriprise franchisee owner adds that initial financial consultations are often free.
Attend a financial planning
workshop Martin suggests people take advantage of free workshops that many financial planners offer.
How safe are my deposits?
The failure of IndyMac Bank and several smaller banks has caused many people to worry about the safety of their bank accounts.
Regular deposit accounts with up to $100,000 are completely insured by the Federal Deposit Insurance Corp., which also insures as much as $250,000 in certain individual retirement accounts.
How did the problems with the real estate market lead to the crisis?
Many investment firms, including Lehman Brothers, made risky bets on subprime mortgage investments, which helped fuel a wave of inappropriate loans for home buyers. Once the housing market began to crash about two years ago, defaults among those subprime investments skyrocketed as many homeowners lost what little equity they had in their homes.
How will what’s happening on Wall Street affect my ability to get a mortgage?
The ripple effects of the credit market crisis have reached to nearly every form of debt, including many home loans for people with relatively good credit. Banks have tightened their standards for traditional loans.
There’s one bright side, however. Bond yields, which move at a parallel pace with long-term mortgage rates, have been particularly low lately.
FDIC (Federal Deposit Insurance Corporation) A government corporation created after the Great Depression. It provides deposit insurance, which guarantees the safety of checking and savings deposits in member banks.
Liquidity crisis When an otherwise viable business experiences an inability to access the credit required to grow the business or pay its debts.
Subprime lending: Generally refers to lending by institutions that carry a higher level or expectation of risk than that of so-called A-paper lending; thus, it is generally accompanied by higher interest rate charges.
— The Patriot Ledger and
GateHouse News Service
By the numbers: A look at your money and how you can maximize your savings
15% Americans who say they can’t afford to put money in savings or are saving inadequately, according to a survey by the Consumer Federation of America and Wachovia in 2007.
$1T Amount Americans keep in low-rate passbook savings accounts that pay on average 2.1 percent in interest, according to the Fed’s Survey of Consumer Finances.
$30B Annual increase in earned interest if the $1 trillion currently in low-rate accounts were moved to high-rate savings accounts, CDs or Series EE savings bonds that pay 3 percent higher in interest, according to the Fed’s survey.
-.5% The average U.S. savings rate in 2006, according to marketing research firm Experian.