Oct 10, 2008

The Economy: How are you responding?

I haven't talked about it much, but that doesn't mean I'm unaware of the current financial crisis our country is going through. I was initially planning to write about how I'm ignoring the meltdown and plugging along because I have faith that eventually things will turn around. But then I realized that it's not quite true.

I do have faith that things will eventually get better. That much is true. But it does appear that in the short term, things are going to stay bad and probably even get worse.

What isn't true about my original statement is that I'm ignoring what's happening in the economy. For one thing, I've already reacted by spreading my money around. Instead of keeping almost all of our funds at one bank, we've transferred enough money to cover a couple of months' expenses to two other banks. I hate the added complication to keeping track of our money, but the peace of mind is worth it.

Another thing I'm thinking of doing is stopping some (not all) of my monthly retirement contributions and using that money to pay off my student loans instead. It would accelerate the payoff date to sometime next year, which is tantalizingly soon. It would mean a guaranteed return of 4.5% after taxes. But it would also mean risking a (small) percentage of my retirement savings if the market turns around in the next year (although I could cut the payments and increase my contribution whenever I want to).

I'm also keeping a close eye on mortgage rates again. With the Fed rate cut earlier this week, I'm hoping that rates will go down enough to make refinancing worthwhile. We've been in our house for long enough and have a low enough rate that rates would have to get absurdly low for us to benefit while still making the regular monthly payment. But if we are able to refinance to a lower interest rate and continue making the same payment that we're currently making, then we would be able pay off the mortgage faster and save tens of thousands of dollars in interest over the life of the loan.

Are you doing anything to respond to current economic conditions, and if so, what?

Image credit: Yahoo! Finance.


Mercedes said...

Yes! I am going to spend the weekend looking at some stocks. I not only bargain hunt for household stuff but I also thinking this is a bargain stock market. I need to do some research though.
I am also hoping we will be able to increase our 401K contrib in the next year to buy more while it's low. We have a long term outlook so we can weather what's going on.

Tiffany said...

In June we started socking away 416.66 each month into each of our IRAs. That is the amount you need to contribute over 12 months to max out. Since we only started in June we had some ground to make up. Starting in September, we stopped making the above and beyond contributions to our IRAs and put it towards our student loans. We are deciding to really focus on our debt for the remainder of the year, but we are poised to max out on our IRAs in 2009 with our contributions.

I'm wondering if it is a bad idea to focus on our debt over our emergency fund. Right now we have enough in our emergency fund to keep us afloat for 1 1/2 months...should we get that higher before worrying about debt? Dave Ramsey would say no, I think, but I don't know if that is good advice in a shaky economy.

Janette said...

We are much older- I am assuming- and went to cash almost 6 months ago. I keep an eye on the orginal portfolio and it has lost 45%. Now that is breathtaking.
I think you should consider cutting in other ways to fund your IRA. We still fund ours- both of ours- at 51 and 57. WE pay into our daughter's (SAHM) and make sure our son does his. Their money (and ours) is going into a "money market mutual fund" poised to reenter the market when the turn happens (I am figuring about six months - and so far I have called every turn-lol)
IRA are such a good thing - especailly if you are young.
I am eye buying today with a list for Tuesday (should be a down day- normal after the week we just had).
And Ms Moose- I would have more than 1 1/2 months in cash right now.

Tony's Mom said...

Reducing contribution to retirement account at this time is probably the worst financial decision. If your goal is long-term, this is the best buying opportunity.

We currently have emergency fund for one year living expense. We are considering to fund that for even longer period of time considering how things can get worse.

Unknown said...

Fortunately we have all of our money that's in the market in Roth and 401K's and none of our regular savings. With 20 years to go until "retirement," there's plenty of time for things to recover. As far as savings, we're working on building up our emergency fund and the rest is going into our businesses that we've started in the last couple of years. While I can't control the markets, I can control the growth of my businesses in the niches we've discovered. Hopefully the retirement funds will be "fun money" by the time we actually can use them.