Strategies for Tough Times: Five Steps to Secure Your Financial Future
Step 1: Build a Cushion
Having an emergency fund to fall back on is going to help you sleep at night during the best of times, and in a shaky economy, it can be a real lifesaver, particularly if you lose your job. I usually suggest about three to six months of living expenses for a two-income family, and closer to six if you're single or your spouse doesn't work outside the home. In a downturn, you want to shoot for six no matter what your situation, particularly if you work in an industry that's likely to be hit hard—think financial services, real estate or retail.
If that sounds like a lot of money, remember that we're talking about bare minimum living expenses here. If you're laid off, your spending is going to come to a screeching halt, meaning your emergency fund doesn't have to hold enough to cover your current lifestyle if it involves dining out every Friday night, a daily trip to the coffee shop and a family movie on Sundays. You just need to have enough to float the necessities: gas, bill payments and food.
So where do you stash the cash? An emergency fund is all about liquidity, so you want to put it where you can get to it easily, but that doesn't mean you shouldn'tearn some interest. Check out money market or high-interest savings accounts, particularly those that are housed exclusively online, then request an ATM card for easy access. But remember, this is for emergencies only, so no swinging by the bank on your way to the mall.
And if you think you've cut back on everything you can, remember that other, bigger items can be adjusted as well. Maybe this year, you pick a family vacation spot that's within driving distance rather than having to shell out for pricey plane tickets.
If you want a little more control, a general formula for balancing your portfolio is to subtract your age from 100. The resulting number is the percentage of your money that you should have in stocks. One other thing: Don't try to time the market. History tells us that this never works, and the best strategy is just letting your money ride. If you start making moves, there's a good chance you'll end up selling low and buying high, which is the opposite of what you want. The market always rebounds, so sit tight.
When all else fails, it doesn't hurt to have a headhunter at your fingertips in case so you can take action quickly in case things go wrong. And networking, always key to getting and keeping a good job, is even more important now. Show up to events, join an association—the idea is to keep your name and face fresh in the minds of decisionmakers.
Also, a good score means easy access to cash if you need it, and in these times, everyone should have a home equity line of credit in their back pocket in case of an emergency.