MSN Money personal finance expert Liz Pulliam Weston

The Basics

7 ways to get ready for recovery

Remember pay raises? Easier credit? Employer 401k matches? They could make comebacks as the recession ebbs. Now's the time to take a new look at your finances.

By Liz Pulliam Weston
MSN Money

Economists as a group rarely agree about much, but the consensus seems to be that we're slowly climbing out of the recession.

Few are predicting spectacular growth ahead (see "America's vulnerable half-speed recovery" for more). Companies are expected to be cautious about hiring and spending, while credit likely will remain tight.

Still, if our national period of hunkering down is coming to an end, you'd be smart to prepare for a few changes. It may be time to:

1. Think about asking for a raise. Don't laugh. Large companies that froze salaries are beginning to boost pay again, according to a Watson Wyatt survey, and more than half are concerned about retaining "critical skill" employees in the future.

The picture is bleaker for small businesses. One survey (.pdf file) of 1,000 small companies by consultants George S. May International found that 77% planned no raises in 2010.

In any case, asking for a raise may not be politic if your company is still laying off workers or preparing its bankruptcy filing. But if its fortunes have stabilized, your skills are in demand and your recent job reviews have been good, you may be able to wrangle a small bump in pay. If not, you can:

2. Beef up your résumé. About one in four large companies plans to thaw hiring freezes in coming months, Watson Wyatt reported -- but one in five is planning more layoffs.

That mixed message jibes with what economists are seeing: slowing layoffs and some job creation, but still far more available workers than positions.

So it continues to be a buyer's market for employers. If you're unemployed, your prospects may have stopped getting worse, because there are fewer newly laid-off workers joining the unemployment rolls. But that's a far cry from actual improvement.

To make yourself more valuable to current and future employers, consider night school to add some skills. Also, look a few years out to see which jobs will be in demand and consider whether a career change might put you in a better position. (Read "Where will the jobs be in 2012?" for more.)

3. Get serious about retirement contributions. Most people with 401k's did exactly the right thing during the recession, which is nothing. They continued making contributions and didn't fiddle much with their asset allocations, according to reports by Hewitt Associates.

Unfortunately, others reacted to economic turmoil or tighter funds by cutting back their contributions. One out of five middle-aged workers had suspended contributions entirely in the previous year, according to an October 2008 AARP survey. And half of those who changed jobs or were laid off cashed out their retirement accounts, Hewitt found.

This start-and-stop approach to retirement just won't cut it, and the younger you are, the more it can hurt. Hewitt found that a younger worker earning $50,000 a year who stops contributing 6% of her salary for five years can have up to $150,000 less for retirement.

If you stopped or slowed retirement contributions, resume them as soon as you can. Your golden years will get here faster than you think, and they might last a lot longer than you expect. Read "Yes, you will live to be 80" for more.

4. Take full advantage of your 401k match. One-quarter of U.S. companies that Watson Wyatt surveyed had suspended their matching 401k contributions during the recession, but many plan to resume company matches in the coming months. Most -- 70% -- said they will reinstitute matches at the same level, while 13% will offer a lower match, and 17% will vary the match based on company profits.

Contributing to a 401k or 401b is usually worthwhile even without a match, since you get a tax break for your contributions and tax-deferral for your investment gains. Once your match is restored, though, there's really no excuse not to contribute -- it's free money that typically constitutes an instant 25% to 50% return.

5. Think about inflation. The federal government poured billions of dollars into the economy to avert a meltdown. With all that money sloshing around, some economists worry about a resurgence of inflation as the economy recovers. (More money chasing the same amount of goods and services can lead to higher prices.)

If inflation does pick up, expect the Federal Reserve to raise interest rates, because higher rates are the primary weapon the Fed has to cool off demand and slow the inflationary spiral. That's why many financial planners are cautioning against investing in long-term bonds or locking up cash in long-term certificates of deposit. (Read "Are bonds the next bubble?" for more.)

A better approach may be to opt for shorter-term bonds and CDs or laddering your fixed-income investments so you can take advantage of rising rates, if they happen.

Continued: Raise your credit scores

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