Protecting Your Finances

With stocks and the Dow plunging, many people are wondering where their money is safe. Stephanie AuWerter, Contributing Editor for SmartMoney.com, has some advice.

First, be realistic - expect more tough times ahead. The economy can't be fixed overnight. "The fact is that right now, we just don't know what the banking sector is going to look like even six months from now," says AuWerter.

AuWerter says the first step to surviving tough times is saving for a rainy day. "Part of the problem with our economy is that Americans are not spending... but I am focused on the individual. My advice is to save as much as you can," says AuWerter. She suggests saving 6-9 months worth of living expenses in a cash account, such as a money market account. "I think the job market is going to get worse before it gets better," she adds. It's important to have that cash cushion in case you are laid off.

Also, be sure to keep your 401k. While it may be frustrating to see that your account is losing money, it will eventually regain what it has lost once the market starts to rebound. "If you have an investment horizon of ten years or more, you want to stick with your 401k," says AuWerter. Continue to make regular investments over time; now that stocks are low, you'll be buying more shares for the same amount of money. When stocks start to go up, you'll have acquired more shares which lessens the blow. If stocks aren't for you, AuWerter suggests looking into bond funds or a cash option instead. "No matter what, you don't want to walk away from that company match," says AuWerter.

When it comes to short-term withdrawals, however, AuWerter suggests pulling the money out now. If you know you're going to need your money within the next few years - say, for a child's college fund - pull it out of the market now. You don't want to run the risk of your investments falling further and taking an even bigger hit.

If you can help it, you should also look to eliminate your credit card debt. Use any extra money you have to pay it down - you could save thousands in interest in the long run. However, once you've paid off a credit card, don't close the account. "Leave those credit lines open. They are a line of defense during an emergency," says AuWerter. Be sure to pay your bills on time every month - this can help keep your interest rates from rising and will help your credit score too. Try writing down a timeline for paying off your cards and call your lender to try to lower your interest rate. Every little bit helps, even if you just pay an extra $5.00 each month.

For more information on surviving a financial crisis, as well as additional personal financial advice, click here to visit www.SmartMoney.com.

By Erin Petrun