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Good Financial Decisions Vital When Times Are Tough

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By David Burge

RISMEDIA, Oct. 27, 2008-(MCT)-During these uncertain economic times, consumers need to take control of their finances by adhering to the basics, experts say.

“Hunker down. Save more and spend less,” said Mike Sullivan, director of education for Take Charge America in Phoenix. “You can get by making bad decisions in good times, but when times are tough, like now, you absolutely need to make good financial decisions.”

Greg McBride, senior financial analyst with Bankrate.com, says consumers need to keep a “cool head” by focusing on “what they can control — the day-to-day fundamentals of sound personal finance.”

McBride’s tips:

–Adhere to a budget. Live within your means, and spend less than you make. “That discipline is key to long-run financial security,” he said.

–Strive for great credit. Pay all your bills on time every month, McBride said, and pay down your debt to boost your credit score and cut interest costs.

–Avoid unnecessary bank fees. Switch to a free checking account, withdraw money only from your bank’s ATMs and sign up for overdraft protection to alleviate “hefty” bounced-check fees, McBride said.

–Don’t be afraid to invest in the stock market, but limit your investment-related fees. Use no-load mutual funds, look for funds with low expense ratios, such as index funds, and keep an eye on trading commissions, McBride said.

But absolutely continue to invest in the stock market, despite the recent turbulence, he said.

“The United States is not going out of business and the world economy is not going back to the horse-and-buggy days,” he said. “The stock market is still the key to building wealth over the long term.”

Eastsider Rose Portillo said she’s trying to deal with the economic crisis by “not paying attention to all the bad news to start with. I’m continuing to pay my bills and do everything I’m supposed to.”

Portillo, her husband and their two children don’t go out to eat as often, and they use coupons when they shop or eat at restaurants to save money.

Portillo said she’s still trying to save money and establish an emergency fund, but she’s not able to save as much per month as she did earlier in the year.

“Milk and other necessities have gone up,” she said.

Sullivan, with Take Charge America, says it’s crucial to create an emergency fund. Most experts say you need to have the equivalent of three to six months’ worth of expenses in a liquid savings account. Sullivan said that with the uncertain economy and job market, consumers would be smart to bump that up to four to seven months, in case they get laid off and it takes more time to find a new job.

“You can’t control what’s happening outside in the world, but you can control how you react to it,” Sullivan said. “You can control where you shop, when you shop, what you buy, how you pay for it, even when you drive, except perhaps for work.”

Avoid making panic moves. The Standard & Poor’s 500 lost about 22% of its value from Oct. 1-10. Now is not the time to cash out of stock-based mutual funds in your 401(k) and go into something more conservative, Sullivan said.

It’s probably too late for that move, he said, and “you’ll be locking in your losses.”

Some people are fearful that credit will dry up so they’re maxing out their credit cards and home-equity loans, Sullivan said. That’s a big no-no, he added.

Maureen Hankins, director of the El Paso YWCA’s Consumer Credit Counseling Service, said the most important thing you can do right now is create an emergency fund.

“Where we all fall down is we don’t have enough savings,” Hankins said.

But if you have an adequate emergency fund, you don’t have to rely on credit cards when life’s emergencies arise, she said.

Also, save ahead of time for Christmas so you don’t have to turn to a credit card this year to purchase gifts, Hankins said.

Start by creating a budget, Hankins said, and asking yourself what you need to survive and what you can live without for a while. Take the resulting savings and apply that to your twin goals — building an emergency fund and Christmas.

Gary Foreman, publisher of TheDollarStretcher.com, advises consumers to pay off their credit-card debt.

“It’s much easier to survive a period of unemployment if you don’t have a lot of debt,” he said.

Consider taking a second job to pay off debt or asking for more hours at work, Foreman said.

Make sure you’re not spending more than you make, Foreman said. But now’s the time to crunch the numbers. Take a look at your pay stubs, your credit-card statements and check registry to make sure you’re not living beyond your means, he said.

“Frankly, people who have lived frugally aren’t nearly as vulnerable as those who have not,” Foreman said.

It’s more important than ever to have an emergency fund, Foreman added.

Having some savings can give you flexibility. If you get laid off, you have a little more time to find a new job, or if you have to move to a new community, you can do that, too, he said.

A big strain on the budget is the rising cost of food, Foreman said. You can fight back by eating out less frequently. Some planning can also make it easier to eat at home, he added. Freeze your leftovers as an entire meal, including meat, vegetables and potatoes, Foreman said.

“The estimate I’ve seen is up to 30 percent of the food we buy goes bad before it’s eaten,” Foreman said. That’s a combination of food that spoils before it’s cooked and leftovers that go bad in the refrigerator, he said.

Copyright © 2008, El Paso Times, Texas
Distributed by McClatchy-Tribune Information Services.

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