We are currently living with a two-faced economy. The front face proclaims that the U.S. has had three-quarters of positive economic growth, a 40 percent increase in reported corporate profits and improved manufacturing output. The back face laments the fact that unemployment remains stubbornly high at 9.5 percent, the housing market is in the doldrums and we headed toward a record federal deficit of $1.3 trillion. Is the economy working its way out of the worst recession since the Great Depression or are we headed for the second half of a dreaded double dip recession?


In Congress there is a raging debate over how to fix the problem. The Democratic majority favors more economic stimulus, while the Republican minority recommends tax cuts and less government interference. The upcoming fall congressional elections will determine which party falls on its face and which one turns the other cheek. The American people are happy that the country avoided a financial collapse, but are not happy with the slow pace of recovery. The stock market has seesawed up and down, but has essentially treaded water for the first half of the year.

What does it all mean?

The worst is behind us in terms of the financial crisis, bankruptcies and mass layoffs. However, the economy over the horizon is not a rosy picture. The consensus economic forecast for the remainder of the year and into 2011 is for slow growth, continued high unemployment and a general lack of consumer confidence.

As individual family units, we do not have the power to have much impact on the overall economy, we can only react and respond to the economic forces in play. However, given what is on the economic horizon, we can prepare for the road ahead. Key areas you may want to consider are:

Investments. Invest fully in your 401(K) retirement plan and make sure that your investments are diversified and in line with your risk tolerance. However, don’t hold more that 5-10 percent of your net worth in company stock. If you have investments outside your company plan, select a good mutual fund company and go for quality.

Employment. Talk with your manager and mentor about your opportunities for promotion. Make yourself more valuable by taking advantage of opportunities to get additional training and broadening your skill set. Invest salary increases, overtime pay and bonuses in improving your financial situation.

Update your resume and maintain a broad professional network outside of your current employer. There may be some new job opportunities that you may want to consider.

Emergency fund. Build up a short term savings account, with a balance equivalent to three to six months of your expenses. The purpose of an emergency fund is to carry your family through short-term emergencies, such as job loss, physical disability or a natural disaster. An emergency fund will preclude the use of credit cards with interest rates of 18-26 percent or higher.

Reduce your debt. Now that the economy has improved, take this opportunity to reduce your debt and improve your credit score. Selectively purchase what your family needs in a planned fashion. If you have credit card debt, begin to work it down now.

Talk to your family. Discuss your financial concerns with your family and explain that this is an opportunity to improve your financial position. Be open and honest and get their ideas for managing the situation.

Living with a two-faced economy is full of uncertainty and questions about the economic future. However, our country has a history of overcoming adversity and we have a lot to be thankful for. Work your plan and look forward to the future with the confidence that you and your family will prosper regardless of which face prevails.

(Michael G. Shinn, CFP, registered representative of securities and investment advisory services offered through Financial Network Investment Corp., member SIPC. http://www.shinnfinancial.com for more information or to send your comments or questions to shinnm@financialnetwork.com. © Michael G. Shinn 2010.)

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