Financial Actions to Consider in an Unsettled Environment

The financial environment can be confusing, even in the best of times. It seems even more so today in light of the financial crisis of 2008, the recession, the housing market, low interest rates, volatile markets and uncertainty over potential future government actions.

Even with all the uncertainty, there are some actions that are always appropriate to consider. In fact, the uncertain future could be the ideal time to review your financial situation, clarify your goals and take actions to help you reach those goals.

Review your financial liquidity

It is often recommended that you should have an emergency fund equal to at least three months of living expenses. If you do not have that much, start saving. If you already have three months' worth, consider increasing it to six or nine months. According to the Bureau of Labor Statistics, the average length of unemployment has increased from 17 weeks to almost 40 weeks over the past four years. Having more is better than not having enough.

Be prepared to find a new job

No one likes to think they may lose their job, but it does happen. Being prepared can reduce the stress if it does happen and make it easier to find another job. Here are some ideas to consider taking now.

• Expand the network of people within your industry that could be helpful in a future job search by joining a trade association or writing an article for the association's newsletter.
• Save samples of your work.
• Be sure your resume is up to date.
• Take classes to improve your skills or obtain certifications that could help you qualify for a new job.

Identify large expenditures that could be eliminated if needed

Reducing your expenses is never easy. While eliminating a morning coffee or dining out less often will save some money, they will not reduce your living costs dramatically. To be prepared, you should identify some major expenses that could be trimmed or eliminated if warranted. Things to consider could include major vacations, private schools instead of public schools and major purchases that could be delayed. Even if you never have to cut your expenses dramatically, knowing that you could will provide some peace of mind.

Review your retirement plans

Most people have not taken the time to determine how much they need to have saved before retirement to enjoy the lifestyle they want after retirement. If you have not done this or it has been a while since you have, spend a few hours and you may identify some actions to take now. If you have a 401(k) plan at work, make sure you are taking full advantage of it by contributing enough to get the full employer match and be sure you are using an appropriate strategy for how your 401(k) funds are invested.

Review your estate plans

Estate planning is more than trying to minimize any estate tax that might be due.

• Be sure your family members know the whereabouts of important documents and are aware of your desires on medical treatment options.
• If you already have a will, be sure it is up to date. Changes in your family situation, moving to a different state or a change in your financial situation may create a need to revise your will. If you do not have a will, have one drafted.
• Be sure to have a durable power of attorney for finances. If you become incapacitate or unable to make financial decisions, this document will make things much simpler.
• Be sure to have a durable power of attorney for health care. This document, along with a living will, tells your family and medical personnel how you want to be treated if you become terminally ill.

Handle your finances more effectively

Many people have difficulty just handling the "paperwork" associated with their finances. Be sure to keep the important papers and don't let unimportant papers take up too much room.

• Documents that support items on your tax return need to be kept for three years after you file the tax return they relate to. It is usually a good idea to keep copies of tax returns forever, but electronic copies, such as PDF files, will take much less space.
• Insurance policies should be kept as long as they are in effect. Loan documents should be kept until the loan is paid off. Receipts and warranty information on major purchases should be kept as long as you own the item and could make a claim.

Improve your financial literacy

It is never too early or too late to improve your financial literacy. Learning more about how to handle your personal financial situation as well as what is happening in the overall financial environment is a worthy goal and there are lots of resources available. Most news websites have a finance or money section with many useful articles. Financial columns in newspapers and magazines often offer suggestions for someone's issue that may be similar to yours.