Tuesday, September 30, 2008

Maybe It's In My Other Pants

We lost $1000 yesterday.

OUCH!

I hear a lot of people, especially people who are my age and younger, talking about this "economic crisis" and freaking out. While I am not an economist, or a financial expert, or, well, I'm not anyone... I'd like to add my advice to the chorus of advice out there, for you to consider as you're making financial plans for your family. (Especially for the people who may be coming over here via MotherTalkers! HI!)

So, here's my advice:

DON'T PANIC!

If you're looking at your Roth IRA or your 401K and you're seeing red (literally and figuratively!) don't panic. You haven't actually "lost" any money. That's only the amount that you would lose if you chose to sell out of the market at this very minute. It's not real money (whether it's low or high) unless you sell.

For most of us who have young families, we're going to be ok. Actually, we're going to be better than ok if we can afford to invest now, while the market is low. If shares of Company X were at $100 yesterday, and now they're at $50, chances are pretty decent that over time they're going to come back up to $100 or better - so buy them now and you can cash in when things come up.

They will come back up. Everything is a cycle. By the time we're ready to retire, the financial world will be a totally different one than it is today. Do not panic and sell everything. You'll make things worse for your family, and if we all did this it would be just like a run on the bank, and make things worse for everyone.

Get professional advice.

Now would be a really good time to make an appointment with a professional financial planner (get referrals, I have a good one if you're local to me), to talk about your portfolio. Make sure you're diversified - in other words, you don't have all your eggs in one basket. You want to take a certain amount of risk with your money, and put a certain amount of it in secure investments, and the percentages depend on your age. Now that things are beginning to get scary, you may want your money to be more readily available than it would be in a Roth IRA or a 401K, so talk to your professional planner about what kinds of investments might be more liquid (readily available) than others, and where your money should be.

Keep on top of your payments.

All of us need to work on paying down debt. Call your credit card companies and see if you can negotiate a lower rate. They'd rather get some money from you than none. I just opened a renewal for one of our business cards that cut our credit line in half, and we didn't do anything wrong! We always pay our full balance on time each month. Lenders are going to be looking for any excuse to cut your credit, so make sure that you aren't giving them any by being late.

And for God's sake, pay your mortgage!

Talk to your parents.

If you have living parents who are in their 50s, 60s, or older, you're going to want to talk to them frankly about their financial health. What changes are they going to have to make as a result of the problems on Wall Street? Have they been living off of dividends from their investments? Do they have a financial planner? Can you go with them to meet with the planner to see what's up? Now is a good time to be really open and honest about their financial picture - not because you want to make sure your inheritance is secure (hahaha... Like any of us are going to inherit anything now!), but because you want to make sure that they can afford their retirement. Do they need to get a job so that they can avoid dipping into their investments while things are low? Do they need to sell their house and move to a smaller, more affordable place? What about a reverse mortgage? Talk about these things honestly and openly with your parents (or with your adult children, if you're a parent) and get professional advice if you can.

Face it, if they can't take care of themselves, then their care is going to fall to you and your siblings, so make sure that if that's the case, you're planning for that scenario, too. Is your house accessible? Could you make it more accessible for an older person than it is? Are you going to need to move if Mom and Dad come to live with you in a few years? Start thinking about these things now, to avoid surprises in the future.

Take care of your kids.

Every single parent out there needs to have life insurance and a will. Period. BJ's life insurance is only about $90 a quarter - or $360 a year, and if something happens to him (God forbid) we'll be covered. I have less coverage, but it's even cheaper. Again, talk to a financial adviser about what you need to do to protect your family in case of the worst, and be a grown up and do it.

Write a will and name a guardian for your dependent kids. It doesn't cost much to have it done. Then put all of this - your will, your insurance info, etc. in a fireproof safe somewhere in your house. You'll sleep better. Trust me.

Do not take on additional debt right now.

Don't buy anything on credit. Don't refinance your house. Don't change anything for a while, until things stabilize and we know what's going to happen. If you have debt, as I said above, try to pay it down as quickly as possible. Don't dig yourself a deeper hole.

What am I forgetting? What are you doing to get your financial house in order?

3 comments:

Neil said...

You give better advice than Suze Orman. You should have your own tv show.

Amy said...

She's got better legs!

:-)
Amy

Sarah M. said...

I totally agree!