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Money Moves To Make, And Avoid, In 2009

Between the Wall Street meltdown, gas and oil price fluctuation, auto industry fallout, and housing and credit crises, many of us were on a financial roller coaster in 2008.

So, what burning questions do you have as we enter the new year with the economy in such perilous shape?

Financial planner Jill Schlesinger, executive vice president of StrategicPoint Investment Advisors, answered some key ones on The Early Show Wednesday.

Should I buy a House?

YES, if you are a qualified buyer (meaning someone with good credit). Mortgage rates are at multi-decade lows (the 30-year rate was at 5.14 percent last week), which means the cost of borrowing is in your favor. Also, prices of homes across the country have already dropped to where they were in 2004, and in some areas by even more. If you're renting, take your time, do your homework and look to buy in the second half of 2009. If you own and want a different house, make sure you sell your house first and be willing to rent if you can't find something. If you're looking for a second home, be patient. For all buyers, start contacting lawyers and realtors who are handling short sales so you can find out where the deals are. The areas where buyers are likely to find the best deals are those that grew the fastest (and have come down the most). So, that means that in California, Nevada and Arizona, you're more likely to get a deal. In Phoenix, prices have plunged 32.7 percent since October 2007, Las Vegas home values are down 31.7 percent year-over-year, while San Francisco prices fell 31 percent. Nothing is safe, but it stands to reason that in places such as Phoenix, Las Vegas and Arizona, there's lots of inventory and lots of bargaining opportunities. Conversely, if I were looking to buy a second home in the Northeast, I would be patient, because those prices haven't declined as much yet (although, with all of the Wall Street job losses, that picture could also change.

Should I refinance?

As mentioned above, rates are at historic lows. Again, if you can qualify, you may want to consider refinancing. If you can refinance and save money by doing so, make sure that you use the monthly cash flow wisely -- direct deposit into your savings or use the money to contribute more to your retirement plan. At this point, there is no reason to think that it will be easier to qualify in 2009, but that may change as part of the Obama stimulus plan.

Should I buy a car?

If you need a car, then now may be a good time. GM announced Tuesday that it was going to bring back zero percent financing for a short period of time. At every dealer, negotiate HARD and be willing to walk away. Don't fall in love with a car -- fall in love with a deal! And obviously, learn the lesson of fuel efficiency! In my opinion, even if the car companies go broke, they will either consolidate or be purchased out of bankruptcy and so too will their warranties. STILL, if I could get two equal deals from Toyota and Chrysler, I would buy the Toyota.

Should I Travel More?

NO! Just because good deals exist doesn't mean you should be spending lots of money. We are in a critical time for the economy -- that means that you should use extra cash to rebuild your emergency reserve fund. If you do have the money to travel, be sure to shop for deals, both in terms of airlines and hotels.

Should I keep contributing to my retirement plan?

You've probably read all the horrible statistics about how woefully under-funded retirement accounts are. That was true before this nasty year in the market, and is even more so today. The single best way to reach your retirement goals is to contribute more money to your plan and of course, work longer. You don't have to choose the riskiest option in the plan, but you need to use the plan! Many plan contribution limits increase in 2009:

* 401(k)/403(b)/457: $16,500 (> age 50, $5,000 catch-up contribution)
* IRA/Roth IRA: $5,500 (> are over age 50, $1,000 catch-up contribution)

How should I be investing?

As always, the rule of thumb holds true: DIVERSIFY!!! That doesn't mean you should own five different stock funds; it means that you need to own a variety of asset classes, such as stocks, bonds, cash and commodities. Those who were diversified in 2008 still had losses in their portfolios, but not nearly as bad as investors who were 100 percent in stocks! (Side tip: This is my opinion, but I think China and the emerging markets in Asia will be among the more interesting places to invest in 2009).

Can I drop my life insurance?

If you need life insurance, don't get rid of it. But, if you determine that the need for insurance no longer exists (your kids are grown, or total money saved is sufficient for the survivors), then by all means, eliminate that premium!

Misc. tips

  • Take Control of your financial life once and for all! Stop talking about a plan and create one. The most important component is keeping track of money you spend. This isn't an onerous budget; it's the most important tool to control your life!
  • RESPECT RISK: For too long, people have been managing their financial lives without respecting the risks they were assuming, whether that meant taking on debt, living beyond their means or investing without understanding the downside. The most important lesson of 2008 is that behavior, left unchecked, can lead to financial disaster.
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