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Lower interest rates and tax rebate checks may help the economy a bit.

But rising numbers for foreclosures, bankruptcies, and energy prices will tax consumers’ spending power and limit growth in coming months.

Even worse, all the “liquidity” the Fed has created recently is likely to lead to inflation down the road. And inflation always brings higher interest rates.

So here are seven steps you must take now to ride out uncertain economic times:

1. Understand that the rules have changed.

The very first step is to change your “mind-set.” What worked before won’t work now. In the past, debt allowed you to have things today and pay for them tomorrow. Now, debt will bury you. Especially if it is floating rate debt.

It’s time to remember that old-fashioned concept of “saving up” to buy a car or for a down payment on a house. “Old-fashioned” is coming back in style!

2. Take an honest look at your finances.

Start by making a list of what you owe — and what you own. Write down the interest rate on each borrowing, and the minimum monthly payment. Now compare with your after-tax income. You can’t fix your situation until you look at it honestly.

3. Cut your expenses.

It’s tough to cut back on your lifestyle. But little things add up. Check everything from your cell phone plan to your cable service to see where you can save a few dollars. Consider raising the deductibles on your homeowner’s or auto insurance to lower the monthly payments, and free up cash.

Big cutbacks can make a big difference. If you’re living on your own, you might need a roommate. Or move home with your parents and offer to pay rent — which will help them, too! (And as costs continue to rise, adult families might have to offer a room to Grandma, who simply can’t live on Social Security.)

4. Earn more!

It’s easier said than done, I know. This is not a suggestion to ask for a raise! But do pay attention to your current job, networking to find opportunities to advance within the company, or to come up with ideas that make you a more valuable employee.

To earn extra cash, try to find a weekend or part-time job that you or another family member could do to earn more money — even temporarily. Put all of your hours to productive use.

5. Deal with your debt.

In spite of the Fed’s action, rates on credit cards may be slow to drop, so pay extra to lower your balances. Take advantage of the current decline to refinance your mortgage or home equity loan and lock in current low rates. You can always refinance again if rates drop further. But if inflation comes, you won’t get that chance.

6. Keep investing.

The stock market is scary, and so is the economy. But if you’re investing for a retirement that is years ahead, the stock market is your best opportunity to do that on a tax-deferred basis. So keep contributing to your company retirement plan or IRA.

Make sure your assets are well-diversified in funds within the plan. And if you’re close to retirement, move some money to the short-term bond or money market fund option.

7. Stay optimistic.

Bad news makes headlines. But we’ve gotten through tough times before. In the early 1980s, we had double-digit inflation, double-digit interest rates and double-digit unemployment in many parts of the country. At that time, few were predicting the incredible growth of technology that boosted our economy and stock market.

Who knows what the future will bring? Maybe nano-technology will be the catalyst for the next round of growth. History reminds us that America has always gotten through tough times and moved forward. And that’s The Savage Truth!

Terry Savage is a registered investment adviser.



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