Finances and the Economy

Being prepared can make hard times more bearable

There was a time not so long ago when most people went about their daily routine without spending too much time thinking about the economy. Recently, however, many more people are talking—and thinking—about it.

It may be helpful to understand some of the factors that contribute to economic pressures:

Rising food and fuel prices
Turmoil in the credit and housing markets
- Of late, this was made worse by an increase in the number of lenders who issued “sub-prime” loans, which carry a higher risk. This created a rise in loan defaults and home foreclosures.
Inflation pressures
Stock-market volatility

It probably doesn’t help that news headlines tend to focus heavily on the negative aspects of the economy. But there is good news: economic challenges can actually help us to better prepare for the future and ensure we develop sound financial plans that can get us through both good times and bad.

Protect yourself with a financial safety net

In times of crisis, you don’t want to be shaking pennies out of a piggy bank. Having a financial safety net in place can ensure that you're protected when a financial emergency arises—and even when one does not.

One way to do this is by setting up a cash reserve. This is a pool of readily available funds that can help you meet emergency or urgent short-term needs. It is recommended that you save for three to six months worth of living expenses. To set up your cash reserve, you can take the following steps:

Save aggressively. You can do this by
- Using automatic payroll deductions at work to divert funds to a savings account.
- Reducing discretionary spending. Examples might be to eliminate television channels that cost extra, telephone features you pay for but don’t use, or cutting back on dining in restaurants.
- Reducing household utility expenses. In winter, try turning down the thermostat and sealing drafty windows. In summer, limit the use of air conditioning. Reduce water usage all year long.
- Requesting new price quotes for car and home insurance to ensure you are getting the best rates.
Keep your cash reserve in a readily available account, such as:
- An FDIC-insured, savings account. You may want to look into online savings accounts, which typically offer the highest interest rates.
- A money market account
- A short-term CD (just be sure to check whether there are penalties for early withdrawal)
Review your cash reserve often to ensure that it contains enough for current and future expenses, particularly if personal or financial circumstances change.

Working with a Financial Professional

Working with a Financial Professional can help you design a financial plan based on your current situation—and where you want to be in the future.

The world was a lot different 50 years ago than it is today. An individual often worked at the same job all his or her adult life, lived in the same house, and stayed married to the same spouse. For most families, one spouse could support a family, paying for college ordinarily didn't require taking out a second mortgage, and people could look forward to retiring on Social Security and possibly a company pension.

Today, the world is a more complex place, especially when it comes to your finances. A Financial Professional can help you adjust your plan as your life changes, and he or she can help keep you on track to achieve your financial goals.

Read more about Working With a Financial Professional

Qualifying for a mortgage

Getting a mortgage when the economy is in a downward cycle can be difficult because banks tend to tighten their lending rules in order to create more financial stability.

Here are a few steps you can take to better prepare for applying—and getting approved—for a mortgage:

Know your credit score.
Request a credit report and correct any errors you may find. If your score is low, you should take steps to improve it before applying for a loan so that you get the best interest rate and terms possible.
Repair your credit if needed.
Pay off existing debts and pay your bills on time. These two steps can help improve your credit score.
Know how much you can afford.
Use an online calculator to help determine the amount you can afford.
Get your documents in order.
Lenders may request pay stubs, tax returns, bank statements, information on debts, and more. The application process will be faster, smoother, and a little less overwhelming if you prepare in advance.
Use existing credit wisely.
Use no more than 25-30% of your available credit.

Also, when an economy is down, crime tends to go up as some people find themselves in desperate situations. That’s why it’s especially important to protect your identity. Read more about this now.