by Dr. Michael Smith

Created on: December 29, 2008   Last Updated: February 16, 2009

So how did you fare financially in 2008? For most people it was not a good year. The Stock Market suffered some huge losses and with them went most of our 401(k) and other retirement funds. Home values plummeted and many people will end the year in much worse shape than they started. The New Year does not promise to be much better. The best financial analysts predict the current recession will not end by this time next year.

So what should we do to maximize our potential for next year? Doing nothing is certainly not an option. Here are a few ways in which you can make the most of the current downturn, and better your position.

First, realize the immediate future is the most uncertain it has been in decades. No one has any idea of where the bottom is in the current financial mess. And as scary as that may be, we must realize that these things work in cycles, and we need to be patient and wait it out. Selling your assets in a down market means you will have no chance to recover money lost. Waiting for the market to recover also means recovery for your financial position as well.

Make sure to keep enough cash on hand to handle emergencies. While financial managers tend to disagree on the amount, at least six months of expenses is recommended. This will prevent the need to sell stocks at lower prices and lose value just to raise emergency cash.

Do not put all your investments in one place. How many times have we heard this? And yet, just this month we saw some of the largest investors and foundations totally wiped out in the Bernie Madoff scandal, by placing everything they had in an investment because of the promise of a higher return. Greed will always get you in the end. It is always those who you trust the most that will do you in.

Diversification is still the rule to follow. Divide your investment capital and select good stocks, mutual funds, international funds, CDs, etc. While the world economy has been devastated by the financial collapse, if you plan to invest internationally, look for countries whose fundamentals are sound and place some money there.

Continue to contribute to retire funds even in the down cycle, taking advantage of employer matching funds and while share amounts are low, your money buys more. When the funds rebound you will be glad you did.

Cut your operational expenses. Look for ways to reduce monthly expenses. The most obvious is the cell phone. Realize its purpose is primarily to talk and cut everything else. The average cell phone bill is more than $200 per month and less than 1/3 of the features paid for are used.

Look for ways to cut your electric bill. Unplug appliances when not in use. Few realize that appliances, like TVs, DVRs, etc. continue to consume electricity even when turned off. If your refrigerator is old, consider buying a new one with the Energy Star rating. It will pay for itself in saved energy consumption. Also, note that a $500 credit returns in 2009 for making residential improvements to their home to lessen energy consumption.

Make a budget and stick to it in the New Year. Pay off credit cards and cut them up. Most credit card holders can expect to see their interest rates and late fees rise dramatically during the next few months. Some may also see their credit limits, cut and even their cards cancelled, as credit issuers clean up their bad past practices.

The name of the game for 2009 is to lessen your risks as rapidly as possible. Devise a game plan that improves your financial situation and allows you to survive the rough months ahead. Enlist the support of the family in this enterprise. While these moves may sound alarmist and desperate, getting ahead of the curve will mean you have an improved chance of weathering the financial storm.

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