Special to The Star-Herald
Traditionally, January is the month of fresh starts, resolutions and politicians grabbing airtime to speak about the state of our union and the state of our states. This year, the theme for all of these is consistent — money. As in we must get our financial house in order … and do so quickly.
Fortunately for most Americans, developing a plan for managing our finances is easier than it is for the government. Unfortunately, the actions of our government and the mismanagement of some of our country’s most important institutions has destabilized critical markets, which has created a fear that has hit our bank accounts with a resounding and defeating thud.
However, the future outlook is not so bleak. Downturns have their bottom, and many prognosticators are forecasting that 2009 will move us away from the current one. In fact, the Wall Street Journal recently published an article by Alan Murray titled, “2009 Could Be Better than You Think,” stressing that great financial opportunities will be available in 2009 for those who are well positioned and not afraid to go after them.
Protect your assets and keep them close at hand
Among the positive moves the government has made to bring stability to the financial market is to increase FDIC Deposit Insurance Coverage from $100,000 to $250,000 per account owner. With so much concern over the health of many banks, this ensures that your money is fully protected and safe. As the FDIC says on its Web site, “Since the FDIC was established, no depositor has ever lost a single penny of FDIC-insured funds.”
If you are still concerned about your bank being at risk of insolvency, Moody’s, a globally well-respected debt-rating agency, provides financial reports and analysis of commercial and government entities, including banks, as well as their credit worthiness. You can register for free access to Moody’s reports at http://v2.moodys.com. It’s better to do a little research than to make uninformed snap judgments.
On a personal note, stay liquid. That is, make sure you have access to cash. While doing so may be difficult, having six months worth of expenses available in either your savings or checking account can help you get through a difficult time and keep your credit score intact. Money market accounts are good options also. They are similar to a traditional savings account with the exception that they offer higher interest rates and require a minimum balance. They also have a limitation on the number of monthly withdrawals you can make from the account.
Another good option for your money, if you can afford to not touch it for a short period of time, is a certificate of deposit (CD). CDs, also known as time deposits, are federally insured investments in banks. They are deposit accounts, not unlike savings accounts, that provide a fixed rate of return for a fixed period of time — as short as 30, 60 or 90 days. The primary difference between the accounts is that a savings account is a liquid account and a CD is not, meaning that you cannot make additional deposits on CDs and you cannot make withdrawals without penalty. CDs offer higher rates of return, and they are good investments because they are safe and short-term enough for you to catch the market on the upswing.
Look for rays of light
The financial markets will not stay down forever. After the financial hit many of us took during the latter half of 2008, that may not be particularly uplifting. However, the worst investment decision you can make in a down economy is to get out of the game.
As Murray states in his Wall Street Journal article, “a smart strategy will be to put some money in the market today, and keep doing it over the course of the year.”
Eventually, the market is going to be a good investment again. It probably already is. It’s just in your best interest to tread carefully and be conservative. That means diversify the investments you do make and continue to save money. Reassess your goals, and work with your financial advisor to ensure that your current and future needs are being addressed.
Being smart today will make you stronger tomorrow
There is good debt and there is bad debt. Good debt nets a return. Examples are student loans, real estate loans and business loans. Bad debt declines in value. Clothes and electronics charged to your high-interest rate credit card fall into this category. The key is to avoid the bad debt. Do not borrow more than you can afford to repay. If you are currently carrying bad debt, pay it off-as quickly as possible. No other investment will give you a higher yield than avoiding future interest payments on high-interest-rate lines of credit.
Also, if you are carrying debt, one option is refinancing your mortgage to consolidate it. For many homeowners, the downturn in the real estate market makes this difficult. The value of your house may be lower than what you owe on it. However, if you’ve not borrowed against the full value of your house and have equity available, or even if you have a fixed rate, rates are historically low and seem poised to drop more, so now is a good time to see if you can save yourself money by locking in at a long-term low rate. It could make a big difference monthly, and it will surely make a huge difference over the life of your loan.
The important thing to remember is that the future is only a moment away — or a decision away. By beginning to make smart choices today, you’ll be able to say to yourself tomorrow: “The state of my bank account is strong.”
Cheri Doak of Caribou is senior vice president and retail banking leader at Key Bank. She works out of the Presque Isle office and can be reached at (207) 764-9425 or cheri_doak@keybank.com.
