A few weeks ago, we had a lesson in church about managing personal finances for an economic downturn. At lot of what we do is based on where we are in our lives. Obviously, some of these points are focused to Latter-Day Saint culture, but they should be applicable across the board to people of all faiths and lacks-of-faiths.

My personal belief is that the six months to one year time table grossly underestimates what we are going to go through over the next eight to ten years, although I believe we are going to see some improvements in the markets in six months to a year, followed by a major slow down in the stock market (perhaps down to ~5,000 for the Dow). I am a follower of demographic forecaster Harry Dent — see his site for more information.)

The bottom line, irrespective of what happens in the future, is to be prepared. The following are the tips given at church with my own comments in parens.

For every age plan–

1. Make tithes and offerings; (obviously for the Latter-Day Saints — irrespective of the economy, our first obligation in to our Heavenly Father; Blessings don’t come until after the trial of faith.)
2. Live within a budget; (this is a tough one, but applicable to all income levels.)
3. Keep some liquidity: (a) cash at home for emergencies; (b) cash in bank for immediate access; (here in California, we are encouraged to have cash on hand — if and when the need arises, we can’t expect the banks to be restocking ATM’s with cash, which may be necessary to buy necessities.)
4. Think through plan for what next, where, and how while remaining flexible;
5. Reduce or restructure debt (pay down, even pay off your mortgage); and
6. Save regularly (a) for the next big expense–house, braces, college, retirement; and (b) the maximum allowed for retirement in IRA and 401k. (Saving is the key to preparation — save for retirement, save for expenses.)
   

Some “now” thoughts–

1. Inflation—not for a while; deflation is likely for next six months; keep eyes open for “buys ” (car, house, TV, etc.); (during down economic times, there are bargains to be found if you have the cash set aside; house prices are likely to fall by 1/2 their 2005 values by 2010-2011.)
2. Jobs—going to get tougher next six months; examine options for alternative employers or job types; discretely float "feelers ;" (the best way to deal with being laid-off is to have a job offer in your back pocket.)
3. Cash—build reserves so that you have at least 6 month cash out flow saved (the minimum time to find another job); shop CD’s online; (be wary of online CD’s to buy only from reputable sources; nevertheless, online will save costs.)
4. Stock market—Off 35+% has happened before; if not yet sold, probably best to stay put; but diversify , <10% any company/industry; US only; (not sure I agree in principle with this as I think the market is going to get much worse in the years to come; that said diversification in both industry and holdings is important–everybody who got killed by bank stocks thought they were safe. Lesson: there is no safe enough to stock right now to have all the eggs in one basket.)
5. Interest rates—down for next year; look at longer maturities for yield (5-8 years); if higher tax bracket, look at tax exempt bonds ;
6. Housing prices—down for next 9 months; probably not return to prior levels for four plus (4+) years; if not yet sold, probably best to stay put ; (I think this prediction is wrong. I think house prices in California are going to drop at least another 20%-30%, and thereafter will slowly appreciate slightly ahead of inflation. In other words, the bubble is over. Get used to lower house values.)
7. Mortgage—if you have 30 yr fixed below 5.25%, hold;  if adjustable or fixed above 5.5%, keep eye open to refinance if you have 20+% equity; if under water, push-push for workout ; (as was stressed, if you are under water on your mortgage, call up your lender and ask to renegotiate. If you strike out with the first person you talk to, talk to somebody else until somebody works with you.)
8. Investments–balance stocks and fixed income so that fixed income equals age ; invest in stocks only what you can earn back;
9. Credit quality—there are no guarantees but keep in investment grade or higher level stock ratings range;  any investment promising returns over 3% above ten year treasuries should be carefully examined; and
10. Self—invest in your self through expansion or improved productivity of business or more training/education.

Use resources–

1. Read newspapers’ financial page and magazines, especially Money Magazine;
2. Visit web sites (a) http://www.bloomberg.com/markets/rates/index.html ; (b) http://www.providentliving.org/channel/1,11677,1709-1,00.htm ;
3. Ask advice and opinions of those who are ahead of you on the age profile.

The bottom line when all is said and done is not to panic, but prepare for hard times.