We must learn lessons from the current recession
Saturday, August 22, 2009, 5:41 AM | Leave Comment
Economists agree now that the current recession began in December 2007. It has been painful for many families across the United States, to say the least. Folks have lost jobs, homes and in many cases their entire livelihood.
But despite the economic bad news, a surprising good news has emerged: a significant number of Americans have started saving again. In fact, the personal savings rate, which dipped into negative territory in 2005, rose above 4% early in 2009, according to Economic Research Division, Federal Reserve Bank of St. Louis, Mo., January 1, 2009.
In addition, the recession has created a renewed interest in household budgeting, paying down debt, and other solid financial habits that many consumers had neglected during the previous years. Indeed, 80% of Americans have taken steps to economize since the recession began, according to a 2009 study by the Pew Research Center.
Financial gurus recommend some solid financial moves you can make, depending on your life stage. Please, find a good financial adviser.
Tips for your twenties
- Start an emergency fund to cover three to six months’ worth of expenses.
- Contribute to a retirement savings plan despite many other demands on your money.
- Avoid credit card debt by paying more than the minimum.
Tips for your thirties
- Increase your retirement savings by allocating part of any raise in paycheck toward your long-term investments.
- Take a first-time home-buyer course and educate yourself about how real estate transactions work to avoid spending money on unnecessary services.
- Open college savings accounts if you have children.
Tips for your forties
- Consider refinancing your mortgage if you have good credit and plan to stay in your home for several years, may save you a considerable sum.
- Continue saving for retirement at least as much as you have been, even if it means saving less for college, according to some financial advisers.
- If your family relies on your income, a life insurance policy will help protect them should anything happen to you.
Tips for your fifties
- If you find later in life that your savings plan is off track, there are ways to catch up. Ask your financial adviser for details.
- Get back to budgeting – The more you can rein in your spending, the more money you can direct toward your retirement savings.
- Remember to rebalance your portfolio – Your asset allocation almost certainly has strayed from your targets, thanks to the market’s fluctuations during the past few years. Rebalance now to get back on track.
- Harvest losses – Now may be an ideal time to sell stocks or funds you hold in taxable accounts and don’t want in your portfolio.
In a Nutshell
Avoid 401(k) hardship withdrawals if you can. As the economic crisis worsened last fall, an increasing number of participants in 401(k) plans took hardship withdrawals from their retirement savings.
Unfortunately, I have started withdrawing from my Rollover IRA. It’ just that I cannot avoid it. Hopefully I would stop doing that when I am able to generate some income.
What do you think?
