Managing your personal finances wisely in 2008

It’s a fact: people are concerned about the economy and what the outcome will hold for them in 2008.

The forecast from the infamous Byron Wien reveals that regardless of the Federal Reserve assuagement, other issues are taking the United States into a recession.

The contributors of this recession, he says, are the lull in the housing market, banks remaining ever cautious with who they lend to, unemployment rates rising, federal funds dropping and gelatinous consumer spending.

What do we do, you ask? Well, Fallbrook’s financial experts share their recommendations on how to manage money wisely while treading through these potentially difficult times.

“For those 25 and younger, they should not have any retail or credit card debt,” advises Greg Grajek, senior vice president and wealth advisor of Morgan Stanley. The only acceptable debt for this age group would be a student loan and a mortgage.

In this age range, Grajek says, a person should be investing in themselves. “They must do everything to broaden their markability,” he said.

Grajek says if an individual is an auto mechanic, he or she should earn special certifications; if a person is a licensed nurse, become a registered nurse.

In other words, take your skills up a notch or two.

“The United States economy is flooded with non-skilled, under-educated labor,” said Grajek.

Grajek sees the United States debt problem as twofold. “The bottom two-thirds of Americans have not had a raise in seven years, yet prices are up sharply,” he said. “For those lucky enough to be under the age of 25, now is the time to invest in yourself.”

A high school graduate earns two times more than a high school dropout and a college graduate earns two to three times more than a high school graduate, explained Grajek.

For the middle-aged group, Grajek suggests that you pay yourself first.

“Before you run off to buy the large SUV or the next motorized toy, you must pay yourself,” he said. “Open an IRA, ROTH or fully fund your 401K, especially if you work for a company that matches your contribution.”

If individuals in this age group are raising kids, Grajek recommends the 529 plan for future college costs.

And like the younger group, Grajek urges people to pay down all their credit card debt.

What to buy or rent comes down to a simple philosophy for Grajek.

“If it appreciates, then own it; if it depreciates, then rent it,” he said. “Own your home but rent the wave runner.”

Despite the economy, Grajek sadly notes that the biggest downfall of personal finance is divorce. It is now estimated that 75% of Americans are expected to go through a divorce.

“You really have to protect yourself,” he said. “It’s divorces that destroy the wealth for people.”

Not only are the assets divided in half, but if the divorce is not amicable, hundreds of thousands of dollars can go into litigation costs, especially in the case of child custody battles. “Sometimes a complete estate can go to attorney fees and child custody battles.”

Financial advisor Kent Borsch, affiliated with Edward Jones, cannot stress this statement enough for all age groups: “You have to live within your means.”

It is not uncommon for those who own a home and have equity to tap into their equity in real property to pay off those high-interest loans, said Borsch. “Those mortgage rates are usually less than their outstanding debt.”

Like Grajek, Borsch agrees to always pay yourself first.

“Take advantage of the tax-saving ways that the IRS and government have instituted,” he said. “A Roth IRA is also a good way to put money away.”

Seniors are beginning to realize that people are living longer these days, added Borsch. “One of the biggest problems I see is that they are not anticipating retiring at 65 and living another 20 to 30 years, he said. “They have to make sure that they have enough money put aside so they do not run out.”

At his office, specialized retirement software is efficiently used to give clients a glimpse into the future as to what their retirement will look like and, for that matter, how long their money will last.

Unless it is part of a retirement financial plan, giving too much money to the kids can put their own personal finances in jeopardy, said Borsch. “I have run into this; people have to say ‘no’ to their kids and need to think about themselves.”

In today’s ever-changing economic picture, Borsch maintains that individuals need to stay well diversified, think for the long term and buy high-quality investments.

“And never forget to live within your means,” he stresses.