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How to keep your job

The best money management strategy in today’s bear market is to maintain a steady income!  One way to do that is to rock your annual performance review.  As companies feel pressure to reduce costs by eliminating staff, they’re going to get rid of their poor performers first.  Now’s the time to prepare for your review — here are some tips on how to do it:

Avoid being a target for layoff

Make sure you know what your goals are and how you will achieve them.  Many companies outline specific quarterly or annual goals for their employees.  If you don’t have explicit goals, ask your manager what you need to do before the end of the year to be considered a success.  In either case, you better make sure you are on track to achieve those goals by Dec. 31 — you don’t want to give your employer any reason to doubt your motivation or abilities.  If you are struggling to get something done, talk to your boss about it now and ask for help in creating a plan to help you finish the task before the end of the year.

Take on new responsibilities.  If you’re set to meet your goals for the year, look at other areas where you can make an impact.  Prepare a report on competitors’ products; volunteer to manage a part of a big project; propose a way to make company operations more efficient.  Think of it like an extra credit project from school.

Document and communicate.  Your achievements are no good unless your boss and her peers know about them.  Write up a report that details your accomplishments and how they’ve benefited the company.  Talk about your accomplishments to your boss and other key managers before your review.  This is no time to be modest — you’ve got to toot your own horn!

Spend less, do good

Our friends at LowImpactLiving.com have put out a good list of tips for saving money in this tough economy — and all the tips have the added benefit of reducing your impact on the environment!  Check ‘em out here!

Want to know where to put all that money you save by going green?  We featured some ideas a few weeks ago.

Predictive predators

I’m a believer in individuals taking responsibility for their financial decisions.  When you get a credit card offer in the mail, it’s up to you to read the fine print and assess your own financial situation before signing and sending in the application.  It’s up to you to not dig yourself into a debt hole.

However, lenders make their offers very difficult to resist.  You’ve heard of “predatory lenders” in the mortgage market, but they’re not the only ones trying to put you into debt.  There are other marketers who spend every day trying to predict who will get sucked into their credit offers.  They scan data on your credit, work history, bank accounts, and more (much of which you probably thought was private), then segment consumers into different buckets.  Each bucket of people receives a marketing scheme directed specifically at them.  The New York Times had a fascinating series on this practice this week.

No wonder some people fall into these “debt traps” — it’s like bringing a hungry person to a Las Vegas buffet and telling them they shouldn’t eat anything in front of them.  So don’t dig yourself into a hole you can’t get out of — JUST SAY NO to credit offers that seem too good to be true!

A little bit of history

So just how bad is it out there?  Many people are saying we’re in the worst financial crisis since the Great Depression.  The stock market has been tanking and the overall economy is shaky, but let’s get some perspective…

So far, the Dow Jones Average is about 34% from it’s high right around this time last year.  That means that many people’s 401(k) plans are one-third smaller than they were a year ago.  Bummer, for sure.

Let’s compare that to the dot-com bust of 2000-2002.  Over the course of about a year and a half, the NASDAQ lost about 78% of its value.  That means if you had $10,000 invested in tech stocks (and many people had most or all of their money in tech stocks at the time), you would have been left with only $2,200 at the bottom.  Even at its recent peak last year, the NASDAQ was still down almost 50% from its high in 2000.

Or how about the famous crash of 1929?  The stock market then got hammered for a few days in a row, falling 40% in that time.  But over the next 3 years, the stock market continued to drift down, finally ending down almost 90% from its peak.  Ugly is an understatement.

The bottom line(s):

This is not the Great Depression (things are going to slow down but no one expects massive unemployment and poverty).  And, this too shall pass (have an emergency fund, dollar cost average your other investments, and you’ll be okay).

If you can’t stand the heat, get out of the kitchen

The stock market is seeing historic losses today because Congress failed to pass the financial bailout plan.  Things are ugly, no doubt about it.  However, I remain optimistic that something will get passed in the next couple of days, creating a small (if temporary) rally in the stock market.  This should be a good time for long-term investors who have some cash on their hands.

If you are freaking out right now or this all sounds too confusing or risky for you, you’re not alone.  If you have money in mutual funds or the stock market that you need to access in the next couple of years, you need to consider moving it to something less volatile.  I am liking TIPS (or TIPS mutual funds) and municipal bond funds (especially if you’re in a higher tax bracket) for a less risky place to park my cash.  You can also consider high-interest saving accounts.

If you are focused on saving for the longer-term (i.e. 5 years or more), this could be a good buying opportunity.  We are in the midst of a financial crisis for sure, but I think that it’s only temporary — the U.S. has a great history of coming back from these tough times, especially over the long term.

Bottom line: If this volatile market scares you, make sure you have a decent portion of your savings in safer investments like TIPS and FDIC-insured savings accounts.  If you’re a risk-taker, now may be a good time to find some investment bargains.

Always marry for money

No, I’m not telling you to turn into a golddigger and only target mates with loads of money.  However, you should make sure that you and your mate have similar attitudes and outlooks about money and personal finance.  If one of you is a hardcore freegan and the other doesn’t have the word “budget” in their vocabulary, you’re very likely to encounter trouble in paradise at some point.  That sounds obvious, but I still know a lot of couples who aren’t really money compatible — which can make for some unnecessary tension in the relationship.

Check out the recent article in the NY Times discussing this theory.  Key recommendations from the article:

• Communicate and share your goals
• Run your home like a business (I love this concept.  Keep track of revenue (income), expenses, and “profit” (savings).  Always have some working capital (emergency fund)).
• Don’t outspend your income
• Don’t pool all your money together — save some to spend on yourself

Financial market meltdown 101

The past several months, and the past 10 days especially, have been really crazy in the financial markets.  While a detailed analysis of what’s going on is out of the scope of this website (we’re supposed to be keeping it simple!), we realize some of you are curious about what’s happening.  Kiplinger’s has a pretty straightforward analysis of the events so far.

The one thing I don’t agree with is that home prices are stabilizing (Kiplinger’s point #13).  With easy credit gone for the time being and adjustable rate mortgages continuing to reset to higher rates, I anticipate home prices in formerly hot areas like CA, NV, FL, and AZ are going to keep going down for at least another 9-12 months or more.  (That’s just my unscientific opinion, though.)

Step away from the 401(k)

The Wall Street Journal reported today that withdrawals from 401(k) plans are on the rise.  This, along with decreasing contributions, is not a surprise given the weakening economy and the stock market craziness we’ve seen.

However, remember to think twice before taking a withdrawal from your 401(k) plan.  Not only are you cracking open your retirement nest egg earlier than you should, you are setting yourself up for additional penalties and taxes.  A 401(k) is for retirement saving; it’s not a rainy day fund.

That being said, if you are truly facing an emergency (medical expenses, imminent home foreclosure, etc.), then you may want to consider tapping into your 401(k) — just be prepared to pay the penalties and taxes that go along with it.

To avoid the penalties and taxes, you could take out a loan from your plan, assuming your plan allows loans.  Nothing’s free in this world, though, and loans are no exceptions — they come with their own issues, too, so be careful with them!

Where to park your money now

Do you have a stash of cash that you may need to access in the next 1 to 12 months?  You might want to look into a regular, old FDIC-insured savings account.  These offer safety and flexibility because they’re insured by the US government and allow you to get to your money anytime you need it.

The problem is that the interest rates on many savings accounts are really low.  So it pays to shop around and look for high interest savings accounts, focusing on those paying 2% or more.  Bankrate.com has up-to-date listings of national savings account interest rates.  Popular FDIC-insured banks with above average rates include HSBC, ING, and E*Trade.

Shop around and find a good rate!  Don’t settle for less than 1% if you don’t have to.