Survival and Recovery: A personal financial strategy guide to 2011

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Updated: March 8, 2011 9:30AM

The economy is coming back for 2011 — and so should you. Come back to believing in the future again. Come back to planning and investing for the future. Come back to strategizing for your education, and your career, and your retirement.

The future hasn’t given up. It will arrive on schedule. And yours will be a better future if you keep your eyes on it. You made it through the worst times seen in generations — and you’re here to read these pages because you know that your financial future depends on you, and the actions you take now.

You’ve survived these past two years of a devastating economy. Everyone’s been impacted — whether struggling to keep a home from foreclosure, or to feed a family, or plan for a retirement with investments that went down the drain. Families have redirected their goals to simply surviving, instead of accumulating. Those who were not personally suffering learned the satisfaction that comes from helping others.

It’s time to put those lessons to work. Here are seven lessons we should have learned, and an equal number of suggestions about what we should be doing now.

SEVEN LESSONS LEARNED

1. Life isn’t easy.

Until recently, the American economy soared to new heights, and was faced only with short recessions. Something always “bailed out” our problems. The good bailouts were the technology revolution that created tremendous growth and productivity. The bad bailouts were the continued growth of credit that propelled the stock market and the housing market. Then reality set in when the credit bubble finally burst.

Life isn’t easy. It wasn’t easy for the pioneers, or the immigrants, or the farmers in the Dust Bowl, or the factory workers of the industrial age. Life isn’t easy for any generation — but even our worst days are better than those of our forebears.

2. The lessons that cost the most, teach the most.

That’s a lesson that every generation has to learn for itself. Sadly, each generation hasn’t the patience to listen to their grandparents or parents tell their tales of woe. Now you will have your own stories to tell your grandchildren one day. And they won’t listen either. But once you’ve learned your lesson about the dangers of borrowing — as the Depression-era families did — you’ll be very careful and conservative about debt in the future.

3. The answers aren’t obvious, and obvious answers are usually wrong.

Many people are taking away the wrong answers from the lessons they learned. For example, many younger investors have sworn off investing for the future, as they watched their workplace retirement accounts melt away. They missed the less obvious lesson that the shares were still there — but the money was lost. If they had held on to the shares — and continued to buy more — they would have recouped most of their losses — and been poised to profit in the future. The “obvious lesson” of avoiding the market is the wrong one.

4. America has always come back.

That’s the lesson of history. If you had lived through the Civil War or the Great Depression or World War II — or many challenges in our history — you might have been tempted to give up on the future of this country. Some did. And the few who left denied their children the benefits of a society that has created a better standard of living for more people than any other on earth. Think you might want to live in China? Now, or even 50 years from now? I doubt that you’d be happier than you are in your most unhappy days here and now.

5. America rewards working hard, and working smart.

That should be an inspiration to all of us to plan for the future. An education will be required — but not if it leaves you buried in debt that you cannot repay. Entrepreneurs will be rewarded with wealth because they were creative and took risks, and because their success improves life for all of us. They create the jobs, and the incomes. Why take the risk, if you can’t dream of the reward?

Entrepreneurs turn dreams into reality. Don’t envy them, or tax them. Become them. And if you aren’t cut out to be an entrepreneur, join someone who is. Groupon has created more than 3,000 jobs in just the last year.

6. We can’t be dependent on the government.

Remember the immortal words of President Kennedy: “Ask not what your country can do for you ... ” Plan for independence, because there is no way our country can take care of all of us as we age. Of course, America has always taken care of the neediest among us, and will always try to do so. But will we have the resources and the growth to provide for everyone? Or will we resort to debt and money printing? And how long will that work?

These past few years should have taught us that government, under both political parties, can’t solve all our problems or fix all our economic suffering. It can only provide the framework for growth that comes from people at every level of our society.

7. It pays to be an optimist.

As you look forward to your financial future, be optimistic, no matter how tough times are at the moment. Optimism is positive and contagious, and it leads the way forward. Every day think of one thing that you are thankful for — and one possibility that you could make happen in the future. It’s one step at a time for everyone, even though in hindsight it appears that some leapfrog over reality by getting lucky or winning a lottery. Actually, when you think about it, there are probably at least 3 billion people around the world who think you won the lottery just by being an American.

SEVEN STEPS TO TAKE NOW

1. Help someone else get a job.

That’s unusual financial advice for the top of my list, but if you think about it, it really makes sense. We need a united effort to get people back to work. So to the extent that you have some ability to offer a job — at any level — to someone who needs work, just do it! Take the risk of putting someone back on your payroll.

Yes, it has to make sense for a small business to hire — but clearly the economy is coming back, so why not be first? And, you don’t have to be a business to hire someone for pay. There are out-of-work people in construction trades who now have the time and incentive to do those home repairs you’ve been postponing. There are men and women who have lost jobs, and who need the part-time work, and could add value — if you tell the boss about their qualifications. Step up to this challenge.

2. Face up to planning for retirement.

This is your own personal challenge, and it’s growing more important by the day as state programs fail to keep pace with the needs of retirees. No matter what your age, go to www.choosetosave.org and click on the “Ballpark Estimate.” You’ll learn how much more you need to save so you’ll have a good chance at a reasonable lifestyle in retirement. Your planning for retirement should start with your first job — but it is never too late to face reality.

Increase your retirement plan contributions at work. Don’t check your investment balance every week, since this is a long-term project. Time leverages money, and your time horizon will extend past your official retirement date, hopefully for many years.

If you would like some respected free advice on allocating your retirement plan investments, go to www.TerrySavage.com and click on the box for “Financial Engines.” This is a retirement advisory program used by the nation’s top employers. Clicking on this box at my website will give you a one-year free trial.

3. Deal with student loans.

Did you know that the government can deduct unpaid student loans from your Social Security payments? That is a huge irony — the fact that the government knows the burden of student loans is so huge that you might be paying them off when you are a senior citizen!

Student loans cannot be wiped out through the bankruptcy process — and they can accumulate huge amounts of interest that will bury you and impact your lifestyle because your payment status may be reported to the credit bureaus.

It’s far better to face up to them right now. If you can’t remember which lenders have which loans, go to the National Student Loan Data System at www.nslds.ed.gov. You can log in and see the loan amounts, lenders, and repayment status for all your federal student loans. If some of your loans aren’t listed because they are from private lenders, your college may have a record of those — if the lenders haven’t contacted you already.

Check out the federal government’s “income-based repayment plan” options at www.studentaid.ed.gov. The most important thing you can do for your future is to face up to your student loans today. Remember: While some programs allow you to stretch out repayment, that only adds to the interest burden.

4. Give yourself a property insurance checkup.

When you’re struggling, it’s tough to think about spending money on insurance. But just think about how much worse off you might be without insurance — whether homeowners, renters or auto — in case of an unexpected crisis. It doesn’t cost anything to sit down with a qualified agent and go over your entire financial situation and exposure. And by combining homeowners and auto, you might qualify for discounts. Check to see if you could spend your insurance dollars more wisely. Consider raising the deductible on your homeowners or auto insurance while increasing the overall coverage. Make sure you’re insured for replacement cost — not just the current depreciated value of your assets. Consider an “umbrella” liability policy to cover you for unusual events or losses, beyond the basic coverage in your auto or homeowner’s policies. Remember, preparation is the best insurance of all.

5. Prepare for emergencies.

Update your will or revocable living trust. You don’t need a huge “estate” to have an estate plan. In fact, most of the important decisions you should make are not about money. Make sure you have created a health care power of attorney and a living will — and that you have given a copy of each to your primary physician, as well as a trusted family member. If you are unable to make medical decisions for yourself, you want your wishes to be followed.

Similarly, make sure that you have named beneficiaries on all your retirement accounts. Consider giving a “springing power of attorney” for business decisions to someone you trust to act if you are incapacitated. This is not a “do-it-yourself” project. See a lawyer who specializes in estate planning to make sure your decisions will not be contested after you are gone.

6. Weigh long-term care insurance.

I know I’ve become a nag on this subject — but only because I see it as a coming disaster for an entire generation. Here in Illinois, the state is already way behind on its bills to state-funded nursing homes. And that’s where you’ll find yourself if you can’t afford $6,500 a month or more for private care at home or in assisted living. I always remind women that we are especially vulnerable because we live longer and outlast the men around us. Long-term care insurance policies provide assistance with finding and scheduling care, as well as paying for it. That’s going to be particularly important to older women who are alone.

7. Get qualified help.

Be careful about whom you trust to give you advice. Always ask how the person is compensated, which must either be by a set fee, an hourly rate, or by a commission that may be hidden in the price of a product you buy.

To find a Certified Financial Planner in your area, go to www.cfp.net. The first meeting should be free. Trust your instincts, but ask questions (see Page 3) and verify their answers by contacting references. “Fee-only” planners can be found through NAPFA (the National Association of Personal Financial Advisors) at www.napfa.org.

To check out a broker or brokerage firm’s disciplinary history, go to www.finra.org, then click on “individual” and then on “broker check.” This is the first place to start before opening an account. Never give any broker or financial adviser a power of attorney to act or trade on your behalf. You must always retain the responsibility to approve transactions.

To find out about the professional background, employment history and disciplinary history of an investment adviser, you can click on the link to the SEC on the Finra BrokerCheck page — or go directly to www.adviserinfo.sec.gov.

To find an elder law attorney, go to www.naela.org and click on the red box to search for a qualified elder law attorney in your area. These lawyers not only make estate plans and wills, but are also trained to represent older people in managing and distributing their assets.

Take it one step at a time. That’s the only way to move forward and profit from the lessons we’ve learned. And that’s The Savage Truth.

Terry Savage is a registered financial adviser. Her columns are available at suntimes.com/savage/ and terrysavage.com.