NEWS - Banking & Finance

By Catherine West Olivetti, Esq, SBJ Special Report

Dec 19, 2011 - As the New Year approaches, one thing is certain – this isn’t your parents’ economy. As news headlines throughout 2011 demonstrated over and over, endless recessions, high unemployment, a foreclosure glut and a bottomed-out real estate market have become the status quo.

Today’s “new normal” is tougher, grittier and more challenging than ever. That’s why Americans require new strategies to succeed in this new economy. The old tried-and-true financial advice simply doesn’t apply any more. The new normal requires new strategies.

As we look ahead to 2012, here are 10 tips to help navigate the economy in the New Year:

- Face up to debt. Don’t just kick the can down the road and defer your day of reckoning. Take a hard look at your credit card debt, mortgage and budget and study the big picture. An overwhelming number of Americans are in hot financial water, with their homes providing a major source of financial strain. Only when you confront the reality of your individual situation will you begin to make positive changes. 

- Develop a strategic debt plan. It’s not always advisable to wipe out debt completely. Come up with a balanced strategy to reduce debt in 2012. Don’t deplete all your cash reserves or you may find yourself facing even tougher times down the road. The stakes have changed, as has the economic landscape. Declaring bankruptcy is not always the solution. There are many other options available in today’s economic climate. Remember that creditors are much more willing to negotiate on payment plans and interest rates than they were five years ago.

- Don’t assume things will get better any time soon. Plan for right now, when the economy is at its worst, and you’ll be able to succeed when it improves. The reality is that no one knows exactly when the economy will improve. The key is to ride out the rough years successfully and with as little collateral damage as possible.

- Don’t let your mortgage bring you down. If your house is underwater and you can’t pay your mortgage, talk to your Realtor about short sale options. It remains to be seen when the U.S. real estate market will hit bottom, but that doesn’t really matter if you need to sell now. If you do need to sell your home, be realistic about your price and remain open to any and all offers.  

- Live within your means. The days of draining a line of credit to finance spending sprees are over. It’s much better to “live low on the hog,” which means creating a budget, reducing expenses and being sensitive to your financial limits. Pay attention to how you spend money and learn to differentiate between the things you want versus the things you need. I often tell my clients, “I don’t care how you spend your money – I want youto care about how you spend your money.”

- Save as much as possible. Even though it’s difficult, hold on to every penny of income and cash you possibly can. The reality is that we are experiencing an economy where every dollar matters and where cash is king.

- Don’t take money from your retirement accounts to finance debt. As our nation’s population ages, it’s even more important for Americans to prepare for retirement through smart planning and strategic savings. A growing number of homeowners are eroding their 401(k) and SEP accounts to finance debt, which is a major mistake. When you put money away for retirement, it needs to be completely hands-off.

- Plan for unemployment. The conventional wisdom has always been to have six months of emergency money to support your family and yourself in the event of a hardship, like a job loss. The reality is that it takes longer to find a job than many people realize, so a six-month emergency fund, in 2012, really needs to be a 12-month emergency fund.

- Be smart about college education. Don’t mortgage your own future for your children’s college education. We’re in the middle of an unprecedented financial crunch, so make well-informed, affordable choices for your children when it comes to college. Don’t let your kids graduate  from a pricey university with crushing debt or compromise your own retirement account to send your child to a private college you can’t afford. The best gift you can give your kids is to be debt-free upon graduation.

- Don’t be afraid to ask for help. There is so much shame surrounding debt, which is truly unnecessary. Getting out of debt requires a sound strategy and smart advice. There is no one-size-fits-all solution that works for everyone. Get help from experts who can help you make the hard decisions. Whether you speak with a financial counselor, an experienced lawyer or a trusted leader at your church, don’t be afraid to talk about debt, particularly when there is so much help available.

- The U.S. housing market is not expected to rebound any time soon, and the nation’s economic recovery is taking much longer than many experts originally predicted. The key to succeeding in today’s “new normal” is to be your own best advocate, to take responsibility for your financial decisions and to develop your own course of action.

Editor’s Note: Catherine West Olivetti is a loss mitigation attorney based on Hilton Head Island, S.C. She can be reached at (843) 341-9260.