Financially speaking, there were always certain things you could count on without a doubt because they were indestructible. When times got a little rocky these “financial cushions” were strong so they would keep you safe. With today’s economic breakdown many of the financial cushions that you thought were solid have been severely weakened.
Before the economic collapse home values never declined, home equity always increased, your retirement accounts never dipped. Declines, decreases, dips – that’s not supposed to happen, right? Well it is happening, you may be having your own personal financial collapse. You need to learn quick ways to rebound.
Rebounding From Financial Collapse:
Emergency Fund Accounts
- Before the current economic bust, if you had 3 to 6 months of income saved in your emergency fund account you were saved. Three to six months of income would carry you through most emergencies. That’s not enough anymore. Due to the economic fallout, you now need to increase your emergency fund account to 12 months of income.
- The quickest way to increase your accumulation in this account is to allocate some of the money you currently contribute to your retirement account to this emergency fund account.
- You are better off changing your 401k contribution amount and increasing this emergency account than someday needing money for an emergency, having no money, and being forced to take a loan against your 401k retirement accounts.
- Once your emergency fund account has a balance with 12 months of income, go back to allocating all investing to your 401k account.
- In our current upside down economy, many home values have declined, maybe yours has also. There is not a thing you can do about the drop in value, but maybe you can do something about your real estate taxes.
- Since the value of the home has declined, see if you can have the tax basis adjusted to that new lower value, after all real estate taxes are based on home values. Saving money on your real estate taxes could turn out to be a big savings for you.
- Has your home equity dropped dramatically? If you do not have as much home equity as you did before, you are not alone. But, unless you were planning on borrowing against the equity, the drop in value is only a loss on paper. Until the market rebounds, hopefully you can sit tight to ride out the economic down cycle.
Retirement Account Values
- Your investment account values have dropped in value. However, unless you are about to retire or are already retired, this is just a paper loss. So shake it off and keep on investing. When the market is down you will be buying stocks on sale, which is a huge advantage of investing during market set backs.
- The worst thing you can do to yourself is to constantly check your account balances; you will end up making poor investment decisions. The ups and downs will not alter that dramatically on a daily or even monthly basis. Check your balances quarterly.
- If you are about to retire, you may have to delay it until the market rebounds. You may also consider getting a part-time job and using that income to meet expenses; this way you do not have to dip into your retirement investment accounts.
It is important to be able to rebound financially during economic stagnation. Maintaining some of your financial cushions will keep you prepared for whatever happens with the economy…. a continued downturn or an up swing. It is definitely worth all efforts to build financial cushions to help you feel less rattled by economic set backs.