Things You Need to Know to Protect Yourself During Economic Crisis

I wrote this blog off of my myspace page back when it was barely determined that the economy was in a slump as bad as (if not worse than) the Great Depression era. You may not trust my economic expertise since I'm not a business school graduate (yet) but I did a lot of research and have saved a few families thousands of dollars worth of interest, helped some individuals learn to start and maintain savings accounts and saved myself from financial ruin. Here is a little of what I have learned.

I have been researching things to protect myself and feel I should share the things I have learned from sources like Suze Orman, Mad Money (CNN), and other financial gurus. Here are some things you need to know to protect yourself during the economic crisis now affecting the world economy.

1. Make sure your bank is FDIC insured or your credit union is insured by the NCUA. If not, simply find a bank that you like that is insured and move your money there. If you have over $250,000 check at the www2.fdic.gov/edie to see how much insurance you are covered for and move whatever extra money you have in the bank to another institution (completely different bank not just another branch) that is covered so that you don't lose any money if your bank goes under.

2. Keep and do not spend enough cash at home only for two days of necessary funds. Plan that those days you will need gas or basic groceries so that you're not desperate for cash if your bank does go under and you are waiting the two days for the federally protected funds to be returned to you.

3. If you are planning to retire in the next 10 years move your retirement, 401(k), IRA/Roth IRA into government backed interest baring accounts like a treasury money market account, treasury bonds, etc. to protect your own retirement while stocks take a nose dive. (It will get worse before it gets better.) If you are not planning to retire that soon, continue to pay into your retirement accounts. Do not pull out money from the accounts and you will be fine with your money when this is all over. You will be very grateful when it does come time to retirement that you didn't cheat yourself out of the ability to retire by stopping paying or by pulling your retirement now.

4. If you are planning to retire on a pension within the next 10 years plan on that pension either being completely gone or paid at a smaller percent (at least 80% of full pension payments) since the pensions are put in place based on the assumption the company will continue to grow in value.

5. Pay off credit card debt ASAP! This is one of the most important things you can do for yourself. With the economy the way it is, credit lines will be closed, lowered and denied for all of us no matter how high your credit score is. When your line is lowered and if you have a balance that can put you over the 50% mark of the lowered line of credit it will lower your credit score automatically and raise your interest rate since you are now a higher risk. Interest rates will be raised across the board for credit cards and lines of credit. If you can't afford the payments, call the credit card companies and talk to them about negotiating the payments to something you can afford on a monthly basis since it looks bad for them and you if you just miss or skip a payment here or there. Most companies would rather make arrangements to keep you paying on time every month so they can report their numbers of bad debt lower which makes them look more profitable to share holders. Start with your highest APR interest rates and work your way down no matter the amount on the cards. (Pay all of them at least the minimum payments but focus on paying off the larger APR ones first.) This way you can start to plug the hole of missing money faster the less interest you are paying.

6. Absolutely do not spend more than you make. It may seem like common sense but the majority of Americans are spending more than they make every month and continue to dig their own holes deeper and deeper until they get foreclosed and lose everything. Here is an easy way to find out how close you are to spending more than you bring home. Take a small notebook and draw a line down the center of each page. Each time you spend money, be it on a debit, cash, credit card, gift certificate, or however you are spending it, write what you bought, how much it was, and the date. On the left hand side of the page write the things you needed and on the right side put unnecessary things you just wanted or felt you deserved. For example:

Milk $1.49 10/10/08 Designer Shoes $540.00 10/12/08

After you fill a page, add the total up on the need side and the want side. You can then see how much money you have spent in one month on needs and wants and then check and see how much money you made that month and if it is less than you spent, it's time to start taking back things to the stores off the want side and reducing the things you buy from the want side next month until you're well under your earned income so you can have some wiggle room and savings. (If you need more help finding ways to save money so you're not overspending, feel free to contact me and I will be happy to discuss your situation and offer advice and suggestions.) Finally, if you can't get your spending under what you make, go cash only. Once the cash is gone, you will stop spending since you have nothing left to spend. Even if you are going cash only, you should be pulling some of the cash for a savings/emergency fund that goes into an account you do not touch.

7. Under no circumstances allow your health insurance or life insurance to lapse. Always make sure you and your family are covered under both these insurances. Plan on having Term life insurance (Suze Orman says you only want term life). 95% of bankruptcies are from medical bills. (That is HUGE!) You can't afford not to have these two insurances, no matter what.

8. Do not pull out all your money from the bank to keep it "safe". You are really shooting yourself in the foot if you're thinking you'll hold it all under your mattress. If you have a savings account, check and see if you can move it to a higher interest rate federally insured money market account since they tend to have higher interest rates and you can increase your money faster that way. Make sure you can still access your money whenever you want just like a savings account so that it just makes more money for you.

9. Keep your cars longer. You spend so much money on a car only to have it depreciate so fast that you can't sell it for near what you paid for. Keep your car until it's paid off and then keep it for at least a few more years. This will save you thousands in interest! Also buying American cars will help the U.S. economy so that as consumers we are helping our own country instead of Japan, Germany or Korea with their national debt/surplus.

10. Build an emergency savings fund. This can be held in a savings account or a money market account (make sure it's FDIC insured or a federally backed treasury account). Using your spending journal, find out what eight months of necessary spending is. Plan on having to pay your car registration or your home owners insurance and other bills that you must pay annually. That is the amount you need in your emergency savings fund. Do not touch this money for vacations or down payments. This is for when your car breaks down (the one that is now paid off that you've had for a few years) or when your son chips his tooth and you need emergency dental work done. This will keep you from digging into credit debt during a very bad time in the economy to be using credit. This can save you when you need the $175 emergency co-payment for the emergency room visit or when you hit your mailbox with your car and don't want to make a claim to raise your premiums. It can save you from financial disaster if you loose your job, it allows you to stay on top of your bills until you can find another job. In this economy where hundreds of thousands of people are being laid off, fired, hours cut back and such, don't think that you are the only one of us who will not be let go. It happens, and all of us may be victims to this critical time. Don't steal from your emergency fund, you're only cheating yourself from your own financial safety net. Save in a different account for things like down payments, vacations etc. so that you only touch the emergency fund when absolutely necessary.