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What You Need to Know About the Financial Meltdown

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Financial expert and mom of two Mary Hunt breaks it down.

woman pulling her hair

The news out of Washington D.C. and Wall Street is not pretty. Talk of bank failures, bail outs, market meltdowns -- it's all scary. But how will this affect us -- you and me?

First -- don't panic. This is not Y2K 2.0, since Y2K pretty much fizzled. But that is not to underestimate the severity and "bigness" of what is happening in your national economy. Everyone needs to start paying attention. Some thoughts:

STOCKS. If you are invested in stocks, buckle up because it's going to be a rough ride. Should you sell? Depends. If you have money in stocks you will need in the next two years, you might want to consider selling during upswings -- after getting an opinion from an investment professional. If you plan to stay in the market, stop watching your account on a daily basis. Just don't do it or you'll drive yourself crazy. Historically, five years is long enough to recover from a major downturn. Remember that.

MUTUAL FUNDS. If you are really nervous, but don't want to sell out, talk to your investment advisor about moving into an Index Fund. You won't do better than the market, but you won't do worse, either. Supposedly.

BONDS. Bond funds and treasury bonds are doing pretty well, so you should be pretty pleased with yourself. Sit tight.

YOUR HOME.  As long as you can keep up with your mortgage and don't have to move in the next two years, don't worry. If you own your home outright, you get a gold star.

MORTGAGE. Even if your lender goes under, you still need to pay your mortgage payment each month. Another entity will buy it -- so you will pay to them. Mortgage rates are dropping so pay attention. You might get a chance to refinance to reduce your payment, or speed your payoff time.

RETIREMENT ACCOUNTS. If you have at least five years until retirement, don't worry about these declines. Provided you are well-diversified (spread your money around if you are currently invested in just one fund or company -- especially if that's the company you work for), you should be able to sit back and wait this out. And keep contributing. Yes -- it's going to be a rough ride, but each time you add money to your 401k or other investment program when the market is down, you get to buy more shares. It's like everything's on sale! Your money will go a lot farther.

CONTINGENCY FUND. This is your savings -- your liquid money in the bank or credit union. Make sure it's FDIC-insured (or NCUSIF for credit unions) and that you don't have more than $100,000 in that institution and you should be fine. Even if your bank goes under and is taken over by the Fed or merges with another bank, that insurance remains. In my opinion, you need at least enough to live on for six months in a savings account. This is money you could get your hands on, not money in your retirement account or 401k. That money is out of reach for now.

In an uncertain financial climate like this, it's important to be prepared. For three steps you can take right now, click here.

Mary Hunt is the creator of the Debt-Free Living newsletter and is also the author of 13 books on money management that have sold more than 1.3 million copies. She's the mother of two sons, Josh and Jeremy.

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2 comments so far | Post a comment now
Anonymous September 30, 2008, 11:17 AM

I love Mary Hunt! Her envelope system saved my life.

April September 30, 2008, 1:04 PM

I like the idea of having cash at the house. Good idea.

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