Lessons from the financial crisis (Part 2)

Five things to try now to help improve your personal economy.

Step 2 - Prepare for the unexpected.

Talk of risk management at the market top was the proverbial skunk at the picnic. But staring into the financial abyss was a hearty reminder of the value of preparedness. In our survey, about half of respondents said they had reduced their personal debt, reflecting a nationwide shift to thrift. In aggregate, U.S. household debt as a percentage of GDP dropped from a high of 14% in 2007 to slightly above 10% at the end of 2012, the lowest level since the government began collecting the data in 1980. Of those respondents who now feel confident and prepared, nearly three-quarters said they have less personal debt than they did before the crisis.

If you have high interest credit card debt, try to pay it down as soon as possible, starting with the cards with the highest rates. If you can’t pay it all off, consider consolidating the debt in a low interest rate home equity loan or line of credit. Also consider these important strategies:

Build an emergency fund. Having enough savings to deal with a flood, a broken car, or a lost job can allow you to keep your long-term investments on track, even when things don’t go as you plan. Fidelity recommends that you keep at least six months of cash on hand in highly liquid accounts like a money market fund or savings account. If you do decide to sock away some cash for a rainy day, you may want to be strategic—using cash-back rewards can help build your savings faster, and keeping costs down for accounts and ATM transactions will leave more of your savings for your goals. The emergency fund has caught on recently, with 42% of the investors who went from scared to prepared said they added to their emergency fund since the crisis. For comparison, just 24% of the investors who told Fidelity they were still feeling scared or confused had increased their emergency funds.

(To be continued...)

Source:  Fidelity Investments

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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