Like many Americans, Jackie and James Jensen are keeping a close eye on the economic turmoil.
They've both been laid off from jobs in the past and are afraid Mr. Jensen could be laid off again. They've watched the gyrations of the stock market and are worried about their 401(k) retirement plans. Their previous economic hard times forced the Rowlett couple to become more disciplined with their money. The current crisis is reinforcing that view. "It made us take a look at what we were doing," said Mrs. Jensen, who works from home as a reservations specialist for the Hilton hotel chain. "We started to evaluate what are our wants and our needs. Where are we blowing the money?" Like the Jensens, many consumers need to rethink their spending habits and return to the basics of building a strong foundation in their personal finances. "It's way past time for people to get back into reality," said Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego. "Pay down debt and quit taking on new debt. Get back to basics and quit overspending." Here are some steps you should take to gain control of your finances: Track your spending. If you want to save money, it's essential to know how much is coming in, how much is going out and where it's going. "A budget should be a guide," said Lynn Lawrance, a certified financial planner at Financial Network Investment Corp. in Dallas. Some consumers may feel that a budget or spending plan will crimp their lifestyle, but it's actually liberating because it lets you know exactly where every penny is going. You also have less chance of overspending and going into debt if you follow a budget. how to be frugal ?. If you don't need it, don't buy it. "Penny-pinching is not a bad word," said Rick Salmeron, a certified financial planner at Salmeron Financial Network in Dallas. "Many people seem to equate this behavior with cheapness, but that couldn't be further from the truth," he said. "Being tight with your money is simply getting the most out of what you buy and not purchasing things that you really don't need." Mrs. Jensen said she and her husband "took a look at where we were spending our money and what can we let go of." One savings identified: Mrs. Jensen said she canceled long-distance service on her home office phone line. "We took a look at the gas bill, we took a look at the water bill," she said. "Little by little, it all started adding up." Pay off or pay down debt. Consumer debt is the real thief of your financial freedom. It sucks up your money, leaving you less – if any – money to save. "In the age when spending-what- you-don't-have-today is promoted left and right, it's hard to imagine a time when people believed that debt should be avoided, but that's the behavior Grandma lived by," Mr. Salmeron said. "If she didn't have the cash, she wouldn't buy it." Use credit cards only for emergencies or when a credit card is required, such as reserving a hotel room or a rental car or buying plane ticket. Pay off your credit card bill each month so you don't rack up costly interest payments. Your credit limit isn't your spending limit. Don't use more than 30 percent of your limit. Don't ruin your credit. Pay your bills on time every month without exception, even if you can only make the minimum payment. This is important because your payment history constitutes the biggest chunk of your FICO credit score, a barometer used by many lenders to decide whether to give you a loan. Save, save, save. If you lost your job tomorrow or became disabled, how long could you last without a steady paycheck? Financial planners generally recommended that you have savings equivalent to three to six months of bills stashed away. But you may need more. Pay yourself first. The best way to do that is to put your savings on automatic pilot. Have an amount automatically deducted from your paycheck and put into a savings account each month. You won't spend the money if it's not in your checking account. Don't dis the 401(k). The 401(k) plan has become the predominant device for retirement savings for private-sector workers. As traditional pensions disappear and are replaced by the 401(k), the onus is on workers to use them to save and invest prudently for retirement. So sign up for your employer's 401(k), especially if the company matches your contribution, which you should max out. If you can't afford to max out your 401(k), contribute at least enough to get your employer's match. That match is free money, so don't leave it on the table. Even if your employer doesn't match your contribution, it's still a good idea to open a 401(k). That will give you a head start on retirement saving – and save you money on your tax bill. Since your contributions are made with pretax dollars, your taxable income is lowered. Invest for the long term. These are volatile times for investors, but you must stay grounded in fundamental investing principles: •Focus on the long term. If you want to benefit when the market begins to recover, you must be invested. Some of the market's sharpest declines have been followed by the strongest rebounds. •Make sure your investment plan matches your goals and time horizon, which is the length of time an investment is held before you cash it out. •Make sure your investments are diversified. "A properly diversified portfolio means more than having a collection of mutual funds," said Trudy R. Turner, director of tax and financial planning at Robertson, Griege & Thoele Financial Advisors in Dallas. "Investments should be established in different sizes of companies, different industries, different markets, different investment styles, fixed-income and equity investments." Plan for homeownership. Don't buy a home you can't afford – and that doesn't mean just the mortgage payment. You also must be able to afford the property taxes and the maintenance and upkeep. The roots of the economic crisis lie in the easy credit that lenders provided, particularly exotic mortgages that many consumers didn't understand and that landed many in foreclosure. But lenders are now returning to fundamental principles of prudent lending and ensuring that those who apply for loans can repay them. Save for a down payment and clean up your credit if you've had problems. "Lower interest rates will not help people with bad credit and no savings," said Craig Jarrell, president of the Dallas region of Pulaski Mortgage Co. "We are back to the basics of common sense."
