The U.S. economy continues to take the right steps as it recovers from the worst recession since the Great Depression. The stock market, as measured by the S & P 500 index, advanced 5.4 percent for the first quarter in spite of civil unrest in the Middle East, an earthquake and tsunami in Japan and bad winter weather here at home. The unemployment rate, while still historically high, continued to decline to a two year low of 8.8 percent in March. First quarter GDP numbers will come out late in April, but are forecast to be in the 3 percent growth range.
There are potential storm clouds on the horizon that could seriously impact the U.S. economic recovery. Number one on my list is the exponential growth of the federal deficit and the long term negative impact it could have on inflation, interest rates and our standard of living. Hopefully, calmer heads in Washington will prevail and real deficit reduction will become a priority for both the administration and congress. Other major issues are Middle East unrest and its impact on energy prices, the European debt crisis and the Japanese nuclear problem.
Get in step
Human nature makes it difficult sometimes to switch from a defensive position after being battered by layoffs, foreclosures and market drops to a more financially aggressive posture.
The U.S. economy is moving forward, albeit slow and prodding. This may be the time to get in step with the economy and position your family for a more positive financial future. Look at your financial positions in each of these four areas.
Housing—Home prices are at historical lows. If you are a first time home buyer this may be a great opportunity to buy your first home at a real discount. If you currently own a home and have to sell it to upgrade to another home, sit down with a competent realtor and discuss your selling and buying options. Mortgage interest rates are still historically low, but may be moving up as the Federal Reserve raises short term interest rates in the future. Also, consider how a new home can improve your family’s energy efficiency, in terms of utility and commuting expenses.
Improve your credit score—Raising your credit score can reduce your interest rate expense. Get a copy of your credit reports. You can get a free copy from all three reporting agencies by going to www.annualcreditreport.com. You can also get your credit score for a small fee. Review your credit reports and look for errors, inaccuracies and negative credit items. If you have credit card debt, work it down with the objective of reducing the total amount of debt, lowering your interest rates and reducing the number of creditors. Don’t make purchases that add to your unsecured debt load.
Retirement plans—Look at your retirement plan statements for last year. Is your asset allocation diversified and in step with advancing equity markets? If you receive a salary increase, can you increase your contribution to your savings plan? If you hold company stock, it should not be more that 5-10 percent of your net worth. .
Build your cash reserves—Your emergency fund should be the equivalent of 3-6 months expenses. An emergency fund will help carry your family through short term financial emergencies such as medical expenses, home and auto repairs and even unemployment. An emergency fund should be invested in relatively liquid instruments such as money market funds, saving or credit union accounts and even short term CD’s.
Take a step ahead
The U.S, economy is headed in the right direction. This may be the time to take a step ahead and position your family for a more positive financial future. Some might say that this seems like a lot of work and it is! But, think of the time as an investment. An investment, that will help lead you and your family down the road to “Financial Success.” If your financial position is not where you want it to be, start today, “take a step ahead” and make it happen!
(Michael G. Shinn, CFP, registered representative of and securities and investment advisory services offered through Financial Network Investment Corp., member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to email@example.com.)