Financial tips for uncertain New Year

December 23, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Services

New Year's financial resolutions are especially important when the economic future is uncertain.

Even former Federal Reserve Chairman Alan Greenspan pegs the probability of recession in 2008 at "close to 50 percent, above or below."

Dealing simultaneously with rising inflation and the credit crunch should keep Fed chief Ben S. Bernanke busy all year long.

Optimists point to global growth, government spending, continued job gains and the chance the worst could be over in the housing downturn. Pessimists point to just about everything else, expressing particular disappointment over the seeming ineffectiveness of recent maneuvers by the Fed and other central banks to ease the world's credit crisis.

Economic uncertainty calls for greater personal resolve if you are to watch out for your interests and those of your family. No one expects anything to be easy or predictable this time around, so be prepared.

Here are financial resolutions for the coming year:

Closely monitor debt load.

There is reason to be prudent about borrowing, avoid new entanglements and toss out any unsolicited offers you may receive in the mail. The number of Americans who fell behind in mortgage payments was at a 20-year high in the third quarter, according to the Mortgage Bankers Association. One in every five adjustable-rate subprime loans had late payments, and new foreclosures hit an all-time high for a second consecutive quarter.

One positive sign is that credit card loan delinquencies have not exhibited a similar rise, according to the American Bankers Association, an indication that consumers are being more careful with plastic in light of other credit stress. Charge as little as possible, try to pay credit card bills in full each month and shop for the best rates.

Among the best recent rates on standard U.S. credit cards available nationally, according to, were Pulaski Bank & Trust Co. in Little Rock, Ark., MasterCard/Visa, 7.99 percent fixed rate, $35 annual fee with 25-day grace period for payment (800-980-2265); Amalgamated Bank of Chicago MasterCard, 10.50 percent variable rate, $37 annual fee and 25-day grace period (800-723-0303); and Blue from American Express, 13.49 percent variable rate, no fee, 20-day grace period (800-223-2670).

Keep track of your investment mix each quarter.

With a presidential election and economic vagaries ahead, review your portfolio periodically. Don't micromanage, but keep abreast of market trends to see if your strategy still makes sense. The Dow Jones industrial average has gained about 7 percent in 2007, the Standard & Poor's 500 has risen less than 4 percent and the Russell 2000 has declined about 4 percent.

A greater number of opportunities appear to be in the foreign markets for the coming year rather than in the U.S., so your holdings should reflect that. Treasuries, intermediate-term bonds and money market accounts are the safe bet in fixed-rate investment.

View your home as a place you live.

Speculators hoping to flip condominiums and other homes were burned badly by the housing downturn, even though industry experts had issued warnings for several years. If you need a home, you can find one because of an overflow of existing properties, lower average home prices and a predicted decline in new home building. Fixed-rate mortgage rates are also at their lowest levels since 2005.

First-time homebuyers, however, may find it more difficult to obtain a mortgage because lenders are tightening standards. Use this situation as a cue to save more money to put down on a purchase because, in the long run, that's the best policy anyway. If you're on the seller side, be patient and reasonable in your asking price, or prepare to stay put for a while.

Take the concept of emergency funds to heart.

Even though hiring has slowed, employment has been a bright spot over the past year. But that doesn't mean circumstances couldn't change, especially if something negative occurs internationally or the credit crunch turns out to be worse than expected.

Have three to six months of salary set aside for a rainy day.

Never let turbulence halt your long-term planning. Put the maximum amount in 401(k) retirement plans and look for company matching when available. Pay attention to your retirement portfolio mix quarterly, because most employees never change their choices after initially selecting them. If you're an independent contractor, have a significant stash of cash because business fluctuations could be common.

Enter 2008 with eyes wide open and a thoughtful financial strategy. If you're lucky, the economic juggling act just might turn out in your favor.

Andrew Leckey writes for Tribune Media Services.

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