The New Recession Savings Rules
Conventional wisdom is not always wise. Here’s a look at four traditional assumptions that have changed over the past year.
Old rule: Keep three months’ worth of living expenses in an easily accessible emergency savings account.
New rule: Stash at least six months’ worth.
Why: The increased chance of job loss, longer periods of unemployment, and the reduced availability of credit (oh, happy days!) all mean you need to keep more liquid money in a separate high-yield, FDIC-insured savings account, like ING Direct or HSBC Direct.
Old rule: It’s smart to call your credit-card company to negotiate a lower interest rate.
New rule: Don’t pick up the phone.
Why: Credit-card companies are using the call as an opportunity to reevaluate your credit and actually raise your interest rate or reduce your credit limit. "So if you still want to make that call, review your credit report thoroughly to catch anything they might find," says Maureen P. Kelly, a certified financial planner in Quincy, Massachusetts. If there are potential issues, like late or missed payments, or if your credit score is lower than the last time you checked it, ask yourself if a lower rate is worth the possibility of a lower credit line.
Old rule: Set the investment mix in your employer-sponsored 401(k) and put it on autopilot for years.
New rule: Monitor your portfolio at least once a year.
Why: Today’s market volatility―combined with the fact that before the recession, many people who were close to retirement had too much money in the stock market―requires you to reevaluate your investment allocation annually (around tax day is generally a good time) or twice a year if you’re within five years of retirement.
Old rule: Keep your current mortgage if the balance is greater than the value of your property.
New rule: Refinance if the amount owed doesn’t exceed the home’s market value by more than 5 percent.
Why: The government recently introduced the Making Home Affordable program, which is aimed at helping home owners with declining property values whose loans are owned or secured by Fannie Mae or Freddie Mac.