The country’s economy seems to be going to the dogs. Whenever I switch on the television or pick up a newspaper all I get to see are the images of those bespectacled, intellectual looking economists and financial experts hollering about the economic crises describing it with terms ranging from ‘a financial catastrophe’ to ‘the largest after the Great Depression’. The announcement of bankruptcy by the 158-year-old securities firm Lehman Brothers and AIG’s bailout by the Federal Government has shaken the confidence of the country, for sure.

What does this mean to an average American like me, who has been paying taxes regularly, has a little amount of savings and investments here and there and a few loans to pay off. Will this mean all my savings will be eroded or that I need not pay back my loans, with the government’s decision to bail out the large investment firms? I was confused.
I sharpened my ears and eyes a bit to really understand what’s going on around me. From what the experts and analysts suggest and from my own little experience, these are my learning’s on how to handle the situation now.

1. Don’t act in haste
There is no need to panic and liquidate all our investments now, unless we need that money desperately. If the horizon for your investment is five years or over, it is then wise to forget about the funds invested in the bonds or stocks now and wait for things to improve. The bulls and bears keep coming in cycles. So if there is a slowdown now, then an upside is to follow certainly. So just wait and watch. Senior members close to retirement could consider realigning their financial portfolio to invest in inflation protected securities and single premium immediate annuities (SPIAs) with the help of qualified financial analysts.

Also if you follow the news carefully, you will realize that the holding company of Lehman Brothers was only filing for bankruptcy. Which means investors and customers of the group’s mutual fund unit, Neuberger Berman and the asset management unit are clearly insulated from the crises. Likewise Bank of America’s buyout of Merrill Lynch only means that the customers of the latter will now have account in a different bank.

2. Take stock of your situation
What people usually tend to do during such situations is either panic and liquidate all assets or just shut up and sit idle until things become better. What you can also do is have a re-look at your financial portfolio, analyze your debts, assets, risk appetite and the like. It makes sense to talk to a financial analyst, explain your goal, income, expenses, horizons and future plans. The analyst who has a hang of the current situation will be able to suggest plans to utilize your funds better and sail through the situation. Websites like moneyStrands also help you in giving a precise picture of your financial situation that will aid in better decision making.

3. Look out for other modes of investment
Okay the stock markets go yo-yo, interest rates on deposits go down, credit card rates and other consumer loan interest rates are up. But there are still some traditional forms of investment that are largely insulated from these global phenomena. Investment in precious metals like gold and silver makes sure that your investments are largely safe from such financial breakdowns. The yellow metal’s price has been on the rise over the last few years and it makes sense to add it to your portfolio now. You could also try buying foreign currency, what with the value of the dollar sliding.

4. Don’t abstain from repayment of loans
Just because the Federal government has assured a $700 billion bailout for financial institutions it does not mean you do not have to repay your car loan or your mortgages. It doesn’t work that way and your bank wouldn’t spare you either. Abstaining from repayment will only affect your credit ratings negatively. So the next time you approach a bank or a financial institution for a loan, you will be asked to pay up a higher interest rate for your loan, or worse still you wouldn’t be sanctioned a loan at all.

5. For the extreme risk takers
If you have a high risk appetite and do not mind taking a chance you could consider buying homes that are being foreclosed or auctioned because of non-repayment of loans by buyers. If there is a house that you missed buying because of lack of funds at the time of selling, or it is in a locality which you like, or if it has become more affordable now, then this is a good time to invest in the property.

You have to be extremely careful in checking the papers to make sure that the person selling the property is the first buyer. Else you will have two or more mortgages to pay back. The rules for such purchases differ from state to state. You could check the local courthouse to see if there are any houses coming up for auction or foreclosure, you could then consult your attorney to check the papers and the rules to follow. Do not act in haste but exercise extreme caution when making such purchases.

I’ll never forget my first paycheck. When I was a kid, my parents gave me an allowance for doing chores around the house, although I think I spend more time trying to figure out how to get out of doing them. I earned additional cash here and there mowing lawns, babysitting, and I even had a paper route for all of a few weeks. But, I’d always been paid in cash or the occasional personal check. My first real paycheck was something different. All of a sudden, I was a wage earner and a tax payer and it made me proud. Made me feel grown up.

Of course, that first paycheck and the ones I collected for the next few years were meager and were usually spent in an afternoon at the mall and an evening of pizza and beer with friends. The days leading up to my next paycheck were usually pretty sad. I lived a duel life. I was rich, then poor. Rich again, and then poor…you get the picture.

Much to my surprise, when I finished school I was employable and joined the White Collar workforce. Now my paychecks feature a couple more digits and a comma separating them! What a time to be alive! The extra cash lifted me out of the boom and bust cycle I’d been in since that first paycheck. All of a sudden I had more money than I knew what to with. So, I did what any good American does. I went out shopping!

First, I upgraded my car and then I moved into a new, bigger apartment with a friend. Next, I furnished that apartment; flat screen TV with surround sound, sofa, chairs, tables and random things too numerous to list. My place is great and I my ride is ‘Pimped’, but guess what? I’m now back to that boom and bust cycle I thought I’d left behind forever.

Turns out, after I pay the bills my much bigger paycheck looks a lot like that first one. It feels like I’m now paying a lifestyle tax and that tax eats up a lot of my earnings. But hey, I’m college educated, I should be able to figure this out, right? Well actually, I have figured some of it out. Since I didn’t acquire and pay for my new lifestyle as part of some organized plan, when the major spending was over, the aftermath was just a bit shocking. But now I do need a plan. A plan for how to budget my money so I know how much I have left to spend after my bills are paid. And I need a plan to execute and track my progress.