The economy has recovered from the recession and is again growing at a good rate. The value of stocks has started rising again and investor interest in stock market is slowly picking up. The government is also retracting some of its liberal policies that were introduced to deal with the recession and the inter-bank lending rate could soon be increased by the Fed.
However, your financial condition might still not be that good. You might have lost a lot in stock market investments, your home equity might have become insufficient for raising money, and the value of your 401(k) might have gone down. Now is the time for you to start thinking about how to get your finances back in order.
Do not unnecessarily worry about the future of the economy, as chances are that it would change for the better. But you should stay prepared for the worst by creating an emergency fund and saving around one year’s income so that even if things go bad again, you would have enough money to pay for your expenses to sail through the rough phase.
Boost your retirement savings by opening a Roth IRA. Keep enough funds in 401(k) to get the full contribution from your employer and put the rest in Roth IRA as they can be used during emergencies without penalty, unless you are below the age of 59 1/2.
Cut down on your discretionary expenses like shopping and vacation and look for deals to minimize your necessary expenses. You should learn to save more and opt for automatic transfer of money from your checking account to your IRA or a savings account so that you maintain financial discipline.
If you have reached your retirement age, then your pension will give you some cushion when the economic situation is bad. But you should use unexpected bonuses such as tax returns wisely. Consider it as an opportunity to boost your finances rather than a chance to have fun. Use part of the money to repay debts and build savings, and then spend the rest wisely.
Finally, you should improve your financial habits in a way that will help you during difficult times. Do not keep too many credit cards, as that increases chances of missed payments and penalties. Make your finances simpler by consolidating debts as well as savings.
Stay calm and avoid panic during a financial crisis. Remember that the economy is cyclical and recession does not stay forever.