Poorer today? Don't do anything rash

Yes, we have taken a hit, largely in the form of lower home equity and a bite out of our individual retirement accounts. And some unexpected medical bills have cropped up.

Other than that, we have stuck to our 2008 goals to:

• Pay off our credit card debt.

• Sock away more in savings.

• Inch our monthly retirement contributions toward 10% of our income (starting April 15th we'll be at about 9%).

We even have our will; our life insurance is just about finalized, and now we are brainstorming ways to save an extra 5% of our income each month in anticipation of certain upcoming costs.

When I tell you that I keep my goals written on a piece of paper in my pocket (and that I look at it whenever I need a reminder of what we're doing and where we're headed), I am not kidding.

Something you can do: Relax and look ahead

Basically, if you have a solid plan for 2008 (if not longer) and you're sticking to it, read no further. Go relax and read Jane Austen and take comfort in the fact that money was stressful even at the turn of the 19th century.

If you're rattled by the economic chaos around us, don't panic and don't worry, for Pete's sake. There's plenty to take care of right under your nose:

Take stock. How's that budget? Looked at a credit card statement lately? Know where your money is going? How is your 401(k) invested, anyway? If the answer is, "um . . . ," don't beat yourself up. Instead, get moving.

"It's totally normal to have put your finances on autopilot," says de Baca, "but the one positive thing about a financial crisis is that it forces people to look at what they have, what they want, and it can be a kick in the pants for you to get a good plan in place. It's never too late."

Look toward the horizon. "Whatever you do, don't stop contributing to your 401(k) or IRA," says de Baca. "Trying to time the market can result in taking on enormous risk -- and even professionals aren't able to do it."

The standard personal finance advice is that dollar-cost averaging (steady contributions over time) beats trying to time the market.

So don't take your cousin Albert's advice to move all your money into overseas bonds.

De Baca points to a study which found that if you had invested your money in a fund that mirrored the S&P 500 between 1997 and 2007, for example, you would have seen a 6%-plus return. "If you missed the 40 best days" -- by listening to Cousin Albert, say -- "your performance would be negative 6%."

Forget the economy, focus close to home. If you watch Jim Jubak -- and I do, because he's sane -- he often takes the trends that dominate the headlines and brings them down to earth. That's where you need to be.

Renew your vows to get out of debt, to save more, to cut that grocery bill (oh, we're trying), to drive less, turn out the lights, turn down the thermostat and redefine your weekends so they don't revolve around mall expeditions or people who love them.

You can try to chase better returns on your investments, of course. We lost $900 from our retirement accounts over the quarter, and of course we'd like to stem that. But ask yourself which makes more sense: moving retirement money to a riskier investment or finding ways to cut $900 a quarter out of our spending?

You still have control over the financial dynamics in your life that make the most difference to your personal bottom line. Seize it.

Last, love your life. Yes, the uncertainty and rising cost of living is taxing, but studies have shown that you can improve your mood and your level of optimism and your sense of control by summoning to mind all the things you have to be grateful for, however small.

And however inadequate or irritating your job, spouse, boss, children, back pain or bills can be, remember what there is to love about life. And that that's where your money is going.

Published April 2, 2008

< previous |  1 | 2 |