When the US economy gets bad, we all feel the pinch. However, some parts of our population feel the pinch harder than others. For example, many senior citizens live on a fixed income consisting of Social Security, small pensions and investment income. For these people, even small changes in costs of food or medicines can take a huge toll on their financial fitness. Listed below are 7 simple steps that everyone can take to improve their financial condition and put themselves in a better position to weather upcoming economic storms.
1) Save more money. I know, this sounds simple and common sense tells us to always have some savings for a "rainy day". However, most people make the mistake of not saving enough. As a general rule of thumb, you should have no less than two months worth of expenses saved in cash (savings account, CD, checking, etc.). For some people, the amount of savings will need to be higher. Putting money into your savings should be a routine part of your financial habits. Make it a point to put a standard amount away every month. For example, have your bank automatically transfer $100 to your savings account each month. Do not take from this account unless you have an emergency!
2) Spend less. This tends to be the hardest change that people have to make. Spending money makes us feel good and we all like that. However, when spending gets out of control we can find ourselves in a hopelessly deep hole that may take some serious cuts to get out of. It is much easier to make small spending "adjustments" along the way. For example, instead of spending $3 each day for that gourmet coffee, simply make a small pot at home for about $0.70. There are many small coffee brewers available that make excellent coffee and buying in bulk saves a lot of money! Another way to spend less is to look for loyalty clubs that pass along savings to the members. I am a member of one such club at my local grocer. Each week there are two or more pages of special purchases only available to members of the loyalty club--and it costs nothing to join! I save tons of money with that.
3) Diversify investments. I have written entire articles on this in the past but it bears repeating here. If you are a senior citizen, you most likely should not be invested 100% in the stock market. Most seniors that I work with need to produce income from their portfolio to supplement their other retirement income sources. In order to give their investment portfolio the best chance of surviving an economic downturn, we use various combinations of stocks, bonds, cash, annuities and alternative investments. Unfortunately, this is an area where many people just do not have the expertise (or courage) necessary to properly identify investment choices that are right for them. You may need to seek the advice of a qualified professional. A fee-only advisor does not accept commissions and therefore has no financial incentive to place you in one investment over another. Go a bit further and seek a fee-only advisor with a credential like the CFP mark. (http://www.cfp.net) A good advisor can pay for themselves many times over and this is money well spent!
4) Negotiate. Practically everything is negotiable these days. Everyone knows that big ticket items are negotiable like cars and homes. But I have personally found success in negotiating the cost of everyday items like trash pickup, newspaper delivery, satellite TV and phone service. You might be surprised that you can reduce the costs of some of these items by as much as 50% or more with a simple phone call. You may have to threaten to cancel your service (which you should do if you can get the service cheaper somewhere else) in order to get the lower price. After all, the service provider had rather be making some money from your account than to lose your business all together. Trust me on this one and make some calls today!
5) Be more efficient. There are some clear ways to be more efficient like running all of your errands early in the morning rather than spacing them out throughout the day and keeping your car tires properly inflated. You should also have a programmable thermostat installed in your home. These devices can save you hundreds of dollars each year by carefully controlling the climate in your home for optimal comfort and savings. Additionally, only run other appliances like the dishwasher or washing machine/dryer when you have a full load. Also try not to run any household appliances during the summer peak energy consumption hours of 11AM to 3PM. My local municipality charges over 30% more for electric power during these hours. Be sure to have your windows and doors checked for leaks at least one per year. A $3 tube of latex caulk is a solid investment for making your home more efficient.
6) Pay off debt. Credit card debt is especially burdensome during rough economic times. Your interest rate can go up, your credit line can be cut or both. This goal has to be balanced with saving but it can be done. Adding another $25 to your monthly credit card payment can significantly speed up the payback period. When it is all paid off, don't close or cancel the account because that may hurt your credit rating. Instead, remove the card from your wallet and leave it in a safe place in your home so that you will not be tempted to use it for impulse purchases.
7) Volunteer. Many studies have shown that people spend more money when they are unhappy or unfulfilled. Likewise, the same studies show that people who feel happy and content spend less money on impulse items. Volunteering in your community is a great (and free) way to boost your morale and feel better about yourself. Doing something for others pays dividends to the community in big ways. Your local animal shelter, homeless center or church can always use additional volunteers. This opportunity also provides you with time to interact with other people who have similar interests as yours. You might even pick up some tips on how to save money!
There are many more ways to prepare for the next financial crisis. If you feel like you are unable to do these things, seek professional help. Referrals from friends or relatives is a good place to start but always be sure to check up on any advice giver especially if they charge a fee or earn a commission from their activity.
Todd Fields, CFP is an expert in the fields of financial planning and investment management. He is founder and President of Trusted Wealth Management, Inc. serving senior citizens and retirees in the Atlanta, GA area. He can be reached via his website at [http://www.trustedwealthmanagement.com] or via e-mail at todd@trustedwealthmanagement.com.
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