Handling Your Finances in Volatile Times

It seems that the financial world has become more sensitive to international events.  Terrorism, the war in the Mideast, higher energy prices and politics in general all seem to be affecting the financial markets and our economy more than ever.

In these volatile times, here are some ideas to help you be prepared for whatever happens.

1. Have some liquid reserves.  A couple of month’s salary in a savings account or short term CD can be comforting.
2. Take advantage of “automatic” financial tools.  Direct payroll deposit, automatic savings transfers, overdraft protection and electronic bill paying can simplify your financial life.
3. Review the asset allocation of your investment portfolio.  How you divide your investment portfolio among stock, fixed income and cash investment will have a large effect on its performance.  Make sure your allocation is in line with your time horizon and risk tolerance.
4. Review your retirement plan options.  Make sure you are participating to the fullest extent you can.  If your 401(k) plan has an employer match, be sure you are contributing enough of your wages to get the largest match.
5. Consider the effect of falling interest rates.  Interest rates have generally fallen over the past few years and many homeowners may now be in a position to save money by refinancing their mortgages.  Be sure to fully investigate the various terms and types of mortgages to make sure yours fits your financial situation and objectives.
6. Plan for the current tax laws.  Marginal income tax rates have fallen.  You may want to review your tax situation now to take advantage of these lower rates.  You should also be cautious of the Alternative Minimum Tax if you are in a higher income bracket or have larger deductions.
7. Get expert advice if needed or wanted.  Your tax advisor, estate planning professional, investment advisor or other financial advisor can help you map a financial strategy that will let you navigate these turbulent financial times.

While the future is unknown, many financial experts are indicating that the economy is on solid ground for the long term.  Panic decisions are often the wrong ones.