The Economy: What Now?

Suzanna De Baca -- Expert Business Source, 10/3/2008 7:56:00 AM

I’m watching Larry King Live on CNN. The Senate has just approved the amended financial bailout and we’re waiting to hear what happens in the House. But Ben Stein – that deadpan, versatile actor/economist – has just hit nail on the head in a conversation with Larry King, saying (and I’m paraphrasing), “Even if the bill passes, what next? Will it work?”

People are asking me the same question. What now? What next? What will happen to us, to our jobs and to our money? What should we be doing? As in any economic situation, good or bad, no one has a crystal ball. I can speculate, but I didn’t think Lehman would go under and I thought that the bailout bill would pass on Monday, so my guess is as good as yours. No one can predict what will happen with the economy, so I tend to fall back on some generally accepted principals which have always been central to good financial management.

Regardless of your net worth, if you’re worried about your job, your retirement, or your assets, consider the following suggestions. While they may not be necessary (or right for everyone), they can’t hurt, and might make you sleep better at night. 

If you’re worried, curb your spending. While President Bush and prevailing economists might like for you to stimulate the economy through spending, I’m all for cutting costs in an uncertain environment. You may have already stopped throwing cash around, but if you can cut expenses in certain areas, it might bring you comfort. Sorry Starbucks – you can live without lattes. You can also shop at discount stores, cut down on frivolous purchases, and do without a few nights on the town. You won’t have to forego fun forever, but minimizing your variable expenses will leave you with more cash on hand and that can serve as a psychological balm when everyone is in a panic.

Do not decrease your savings. If you are making contributions to your retirement plan, such as your 401(k), don’t stop. If your employer matches your contributions, failing to save in your plan is like refusing free money. Right now you’re putting new money to work at market lows, so even if your balance has gone down, your contributions will be of benefit to you in the future. Again, psychologically, you can point to your contributions as proof that you are moving forward, not falling behind.

Do not compare yourself with your neighbors, family or friends. Don’t worry about keeping up with the Jones – almost everyone is in the same boat. Even the ultra wealthy are complaining about the price of jet fuel for their private planes – it is all relative. The economic situation of others is irrelevant and should not be a factor in any of your decisions. If you feel peer pressure to continue vacations, entertainment, charitable contributions or other visible spending, allow yourself to release those obligations. Your worth is not based on what you drive, where you vacation, or what you give to the Opera or school. Take care of yourself first and let your neighbors take care of themselves.

Review your investments. As I’ve said before, rather than panicking and making impulsive moves, consult with a professional and evaluate your portfolios. If you have unduly risky or unsound investments, a change may be in order; if your portfolio is simply down, as most are, you may be better off taking no action. In any case, you’ll feel better if you can appraise the quality of your holdings and have a plan to weather this current storm.

Create a Plan B. If you are worried that you may lose your job, your house, or savings, take an inventory of your options. Polish up your resume. Sock away as much money as possible while you still have a job. Call your mortgage company and negotiate (they are responsive – do you think they want you to default?). Get a second job. Look at all your alternatives before the situation worsens and you will feel more equipped to handle whatever happens.

Do not panic.  You may feel fear in an economy like this, but panic and impulsive behavior never helps. Keep a cool head, think rationally, and you’ll be better off. If you have to stop reading headlines or watching TV in order to maintain calm, then take a break. 

Suzanna de Baca is president of Private Capital Solutions Group. Securities offered through Broker Dealer Financial Services Corp. Member FINRA & SIPC. Investment Advisor Representative of Investment Advisors Corp., A Registered Investment Advisor.  Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.