How to Manage Your Finances in a Volatile EconomyBy: Bill Rice
A couple of days ago, I wrote an article on the S&P credit downgrade and its impacts on your personal finances. Literally hours later, the Federal Open Market Committee (FOMC), who sets the fed funds rate and is a major influencer on overall interest rates, shuffled the deck chairs again.
Interestingly enough it doesn't really change the guidance I gave you:
- Financial market volatility is giving you great opportunities to lock in a historically low mortgage rate, and,
- You should learn from this US government debacle and keep a close eye on your personal credit rating.
There is a reason that the volatility in the market didn't dash my advice: I like to lean on the basics in times of financial market volatility. With that premise in mind, let's review some of those personal finance basics that will guide you through crazy economic times.
1. Create a Budget. You really have to start here. Forget what the financial markets are doing and the economic pundits are saying - write down your own microeconomic plan. Open up your checkbook and gather your credit card statements. How much money do you bring home? How much money do you spend in the average month?
Simply do your best (and it will be hard) to make the first number bigger than the second. It all comes down to buying a few less non-essentials and saving some pennies on the essentials.
2. Pay the Bills. Once you have a better picture of where all the money is, it's time to pay up. The nice thing about the current financial market upheaval is that your interest rates on bills like credit cards and home loans are likely to go down, lowering your monthly payment.
If you don't see this automatically happening, call your credit card companies and trusted mortgage expert and ask for a lower rate - before this window of opportunity closes.
3. Save for Surprises - Surprises Happen. The Federal government has given us one right after another: congressional budget drama, debt ceiling deadlines, S&P credit rating downgrades, and fed funds rate announcement. Each has sent the stock market and interest rates on a roller coaster ride. Layer on to that your own personal surprises: car breaks down, kids need braces, unexpected medical bills - life happens. Having that $500 to $1000, or better yet three to six months worth of expenses, in savings can be a financial lifesaver.
4. Spend Wisely. Staying within your budget, paying the bills and saving a little bit on the side all starts with smart spending.
First, you need to spend your money on things that are important, will last and add a little value to your life. It doesn't all have to be milk, bread and toilet paper. It should enrich your life in some tangible way. For example, to get a better paying job I might invest in a reliable computer for job searches, resume writing, and email before I grab the hot new video game release or upgrade to the expanded cable package.
Second, are you shopping for the best deal, finding the right loyalty programs and asking for discounts? Taking a couple of minutes to fill out and use loyalty cards like Rite Aid's Wellness+ Rewards or the Kroger Plus cards and making a few smart money saving cutbacks can really stretch your budget.
5. Watch the Numbers. Following these basic steps will definitely get you on the path to a better financial plan. However, getting to the financial freedom promise land requires watching the numbers:
- Check your credit report and score monthly. Protect your credit report from mistakes and identity theft.
- Set-up spending alerts on your credit cards (available on most cards). Spending alerts can act as alarms to keep your credit card purchases under control.
- Regularly check with credit card companies and your trusted mortgage expert for lower interest rates and payments.
And try to make it fun. Most importantly, like a diet, you have to make it as pain free as possible. That means making your personal finances fun.
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