Ramsey County

Making $ense of Dollars and Cents

March 30, 2009

Surviving Financially

            As the economy continues to struggle, families and individuals are tightening their proverbial belts even more and looking ways to survive financially.  Below are some financial planning and investing recommendations that are appropriate at anytime, but especially now. 

             Spend less than you earn and avoid excessive debt. If household income is reduced due to unemployment or lower investment earnings, and household expenses continue to rise, adjust your household spending plan (budget) accordingly or prepare one for the first time.

      Be future-minded. Research indicates that, at every income level, people who are “planners” are more successful financially and feel better about their financial situation than those who do not plan ahead. Planning for the future includes taking a long-term view of historical investment returns; calculating the savings required to achieve future financial goals, such as retirement; saving and investing regularly to achieve financial goals; and proactively addressing potential future challenges, such as the cost of long-term care and estate planning.

       Build human capital. One of the best defenses against unemployment is to be a productive worker with current job skills in demand by employers or needed as a consultant.  Another way to build human capital is to practice good health habits, such as eating nutritious meals and getting adequate sleep and exercise.

      Make compound interest your friend. Invest early and often, particularly in tax-free (for example, municipal bonds or bond funds) or tax-deferred (for example, IRAs) investments, where income taxes are not owed or can be postponed until later life. Avoid tapping retirement savings before retirement unless absolutely necessary. Also avoid making just the minimum payments on credit cards. For credit cards, compound interest works against you. For example, a $3,000 balance on a credit card charging 18 percent interest with minimum payments of 3 percent of the outstanding balance will take 14 years to repay and cost an additional $2,625 in interest charges.

      Know your risk tolerance level. Risk tolerance is a key factor in building a suitable investment portfolio regardless of whether markets are up or down. A research-based investment risk tolerance assessment tool can be found at http://njaes.rutgers.edu/money/riskquiz/. Research conducted with this instrument has found that risk tolerance often varies with the direction of market indices. Ideally, risk tolerance should be somewhat stable regardless of market conditions.

Go to Making $ense of Dollars and Cents Index
Go to Ramsey County Extension Service Home Page

524 4th Ave NE #5, 2nd Floor Ramsey County Courthouse
Devils Lake  ND  58301
701-662-7027
email - NDSU.Ramsey.Extension@ndsu.edu