Tuesday, October 7, 2008

The Financial Crisis and You

Making ends meet on minimum wage, currently at $6.55 per hour is tough. As the numbers for a basic wage, tax and net pay breakdown show, there is not a whole lot left over after the “Tax Man” gets his cut. Just the tax on the wages earned come to just over 22% of gross wages and that’s not including the medical deduction if you’re lucky enough to have an employer who offers it. I distinctly remember working for minimum wage when my wife and I were starting out.

The $14 dollar contribution to HSBC Direct ( www.hsbcdirect.com ) for this pay cycle is winging its way there as I write this. I’m currently on track to hit $366 dollars (2008 is a leap year) by my last pay cycle in December 2008. I did get off to a slow start because of HSBC’s silly and annoying sign up process, but that’s all done and now all I need to do is keep up the pace.

I have avoided writing anything about the current economic mess that we find ourselves in … until now. What could and should you do during the current economic crisis?

First off, don’t panic. Trent Hamm at The Simple Dollar ( www.thesimpledollar.com ) wrote a great article linked here ( http://www.thesimpledollar.com/2008/10/02/the-only-thing-we-have-to-fear-is-fear-itself/ ). I recommend giving any financial decision time to age, say 24 hours. If you still feel the same way about a situation or decision after a 24 hour cool down period, then perhaps consider a small change. Don’t make any sudden or drastic changes to your financial plan. Financial decisions made in haste based on emotions will almost always end up biting you in the backside. I speak from experience. It’s a hard lesson to learn.

Secondly, how’s your insurance? No, not your life insurance although that is important. Are you FDIC or NCUA (National Credit Union Association) Share Insurance protected? And to some extent SIPC as well. More on SIPC insurance in a minute. If you are covered by the previously mentioned Federal Insurance programs and you’re within the limits of these programs, you will not lose your money if a financial institution is taken over by the Feds, bought out by a competitor or even shut down. The worst case, a bank shut down, will only mean a delay in access to your money. Now about that SIPC insurance. SIPC, which is the Federal insurance program for investment accounts, does not protect you from loss from fraud, fluctuations in the market or investment losses.

Thirdly, are you diversified? Make sure whatever ratio of stocks, bonds and cash that you have lets you sleep at night. Check your allocations and make sure you’re maintaining your ratios. If you feel the need to boost one category in particular, add more money to that category rather than selling something to rebalance. In these trying times, now is not the time to sell in a panic.

And lastly, do you have a cash cushion? How fluffy is your cash cushion? Do you have three to six months of expenses in a high yield savings account? If not, consider boosting the amount of cash on hand to better weather a sudden job loss or credit freeze.

If all else fails, get help. Liz Pulliam Weston wrote an article linked here (http://articles.moneycentral.msn.com/CollegeAndFamily/RaiseKids/WhereToTurnWhenYoureDesperate.aspx) about where to turn to if you end up at the end of your rope.

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