Surviving the Fiscal Cliff

  • Written by David
  • November 30, 2012 at 4:21 pm
  • 0
  • It pays to be ready for a plunge off the fiscal cliff and back into economic hard times.

    The news is full of baleful talk about the fiscal cliff, a combination of tax increases and spending cuts that hit Jan. 1 unless a divided Congress acts. We keep hearing that lawmakers will resolve this dire situation. But what if they don’t and the worst occurs – the U.S. economy tumbles back into a recession?

    This would be an abrupt shock to the global economy and global financial markets. Is your household prepared, should we go over the cliff? How can you prepare your household for this event if it occurs?

    Four things you can do you to have confidence when confronting the fiscal cliff:

    1. Investments. Explore your current investment portfolio, including your company 401(k), and make decisions about your money that protects your capital and reduces risk. Is it time to rebalance those portfolios? Should you be more in defensive positions, such as bonds and utility stocks?

    2. Mortgages. Pay your mortgage at least every two weeks instead of monthly.  This could reduce a 30-year mortgage by as much as six to eight yrs.  Imagine how you could better use years of interest payments, like increasing your contribution to your company 401(k). Plus, you then have more take-home cash. Also, consider refinancing your home mortgage, as well. Rates are very low, and a new economic downturn likely will keep them low.

    3. Credit cards. Freeze your cards for a while and choose to pay everything with cash so that you can get back in touch with your money. Ensure that you focus on paying off that credit card bill– all of it.

    4. Day-to-day economies. Take a look at your bank statements and checkbook to find out where your big expenses are and prioritize which ones you must keep and which you can do without.  Cable TV subscriptions, lattes, cellphone plans and Internet are big bills in many households. Maybe you don’t need premium cable service because you really only watch network shows.  You could save as much as $4,000 a year by paying only for goods and services based on how much you use them and how important they are to your life.

    We’ve seen markets come and go, rise and fall. And we can empathize with you patience-running-thin folks who find their financial and retirement plan structure troublesome. If good financial advisors find your plan is well-structured to meet your long term and lifestyle goals – in spite of the economic climate – they should tell you so and send you on your way. If on the other hand, the advisors can find potential to optimize your plan because it may no longer fit with your goals, they should get started by recommending some alternatives.

    Remember the words of John F. Kennedy: “My fellow Americans: ask not what your country can do for you — ask what you can do for your country.”  At this point in history, you can take control over your money and your future rather than expecting other people to do this for you.

    Some resources:

    1) Do you know how much your investments declined in 2008-2009? Compare your investments to the market during the past five years at Yahoo Finance-click here

    2) Calculate a biweekly mortgage payment at here

    3) A few select articles on freezing the credit card

    Article One Article Two

    4) Calculate your own personal budget at Kiplinger’s-click here

    5) Some media assessments:

    USA Today fiscal cliff graphic-click here

    Washington Post fiscal cliff chart-click here

    Related Article: ‘Fiscal Cliffs’, Financial Repression and Dividend Growth Stocks, Do they mix well?, written May 4, 2012

    David Gratke is chief executive officer of Gratke Wealth LLC in Beaverton, Ore.

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