Planning Financially in Uncertain Times

Tips on how to prepare for unexpected events

With Americans facing economic recession, job losses, and uncertain times, how does one prepare financially for an unexpected life event? The American Savings Education Council (ASEC) says one way to protect yourself and your family is to save and get your money situation in order so that if and when the time comes, you will be prepared financially.

"When you are in the midst of dealing with any kind of stressful situation, the last thing you want to worry about is how you are going to pay the next bill," said Don Blandin, president of ASEC. "Life is full of uncertainties and the reality is that planning for your financial future is not an option, but a necessity for every individual."

Saving and planning financially for the future is empowering, and not just in times of personal adversity. By having a nest egg, individuals can attain their life dreams and long-term goals such as: buying a car or home, paying for college, retiring comfortably, paying for long-term care, or even leaving some money for the next generation. Or simply having the extra cash for daily necessities and the occasional splurge.

"The 2001 Retirement Confidence Survey found that 54 percent of workers report that their household has tried to figure out how much it needs to save and accumulate to have a comfortable retirement - that means almost half of all workers don't know how much they need to save for their future," said Dallas Salisbury, president and CEO of the Employee Benefit Research Institute. "It's time for individuals to step up to the plate and start taking the steps to ensure their own financial security."

Steps you can take to prepare yourself and your family financially:

  • Have a rainy day fund: Having three to six months' worth of living expenses in a savings account is the best way to assure that you are ready for transitions and for emergencies. Long-term, you won't ever be able to retire with comfort if you don't have a lot more than this, so the rainy day fund is a good place to get started.
  • Get out of credit-card debt: It is hard to focus on long-term saving and investing when you have high-interest-rate credit card debt hanging over your head. Commit to getting rid of your credit card or installment debt, while still putting some money away for a rainy day. Begin by reducing the number of credit cards you own (shop for a card with the lowest interest rate and annual fee). Consolidate your debts onto one low-interest card, start paying off your credit card debt, and commit to only using your credit card in emergency situations. If you can't pay cash for a discretionary item, think twice about buying it at all.
  • Track your expenses and create a budget: Write down all your expenses for a week or a month and see where you can realistically cut down on your spending. Categorize where your money will go (e.g., bills, food, clothes, recreation, etc.), including an emergency fund (e.g., car problems) and "luxuries" (items that you think you can't live without such as your morning latte). Then get a budget in place for the future. Include a budget line to pay yourself first, with a contribution to savings.
  • Do a savings needs calculation, including retirement: Fill out a retirement planning worksheet such as ASEC's Ballpark Estimate. There are also many general savings calculators to tie to your budget at www.choosetosave.org Things you will need to consider include: lifestyle, longevity, health concerns, caregiving, and how long you plan to be retired. With increased life expectancy, people today are living longer-so you will need to plan even more carefully for your years of retirement, and when to retire.
  • Have insurance: If you have a spouse, partner, children, or family members who are dependent on your earnings, have a base of life insurance. You and your family members will also be in a better position to deal with an unexpected crisis if you have health insurance. Other insurance to consider includes: homeowners' insurance, disability insurance, and long-term care insurance. Visit the Consumer Health Education Council's Web site at: www.healthchec.org for more information and resources.
  • Estate planning: A will is a roadmap for others upon your death. Without it, things can get complicated and your family is far more likely to be hit with unanticipated legal expenses. In addition, consider who will have durable power of attorney for your finances (this gives someone the legal right to make financial decisions for you if you are unable to do so yourself), durable power of attorney for health decisions, who will have the right to make medical decisions for you, and write a living will to instruct the hospital staff and loved ones on how you want to be cared for should you become terminally ill or injured or need to be on life support.
  • Organize your records: Get your important paperwork and records in order so they can be easily found and understood. Make sure a lawyer has a copy of your will and consider getting a fireproof safe-deposit box for original documents such as a birth certificate, marriage license, lists of credit card and account numbers, Social Security card, etc. Consider creating an easy-to-read document detailing all your financial accounts, insurance policies, etc., so your loved ones will not miss any important information.

For additional information and interactive savings tools to help get you started, visit the ASEC Web sites: www.asec.org or www.choosetosave.org. Some additional resources include:

  • Certified Financial Planner Board of Standards has posted on its Web site (www.CFP.net) a special section entitled "Financial Advice During a Crisis." The section includes "Frequently Asked Questions During a Crisis," as well as a toll-free number (1-888-237-6275) where individuals can contact a list of practitioners who have volunteered their time to provide financial planning counsel during this difficult time.
  • Financial Security In Troubled Times: What You Need to Do Now, by Ric Edelman (HarperBusiness; November 6, 2001; $14.95). Edelman is donating 100% of his proceeds from the sale of the book to relief efforts aiding victims of the September 11 attacks and their survivors, as well as to other charities. (www.RicEdelman.com)
  • Talking Money: Everything You Need to Know About Your Finances and Your Future, by Jean Chatzky (Warner Business books; January 2001; $24.95).

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