Managing your money in turbulent times

NEW YORK -- The U.S. economy is in recession, and new layoff announcements seem to come daily. The stock market has fallen two years in a row, and interest rates are at historic lows. Meanwhile, people are still jittery from the Sept. 11 terror attacks.

These are turbulent times in which to be making financial decisions. Yet small, thoughtful steps now can help shore up your finances and lay the groundwork for big dividends in the future.

"This is a time to really think about your goals -- and develop the strategies to meet them," said financial planner Bob Barry of Hackettstown, N.J., the new president of the Financial Planning Association.

The first step many Americans need to take is to clear up their personal balance sheets. That is, to make a commitment to get rid of credit card and other installment debt.

Heavy debt becomes an even bigger burden if you lose your job, and it also complicates efforts to increase your savings.

Next, everyone should have emergency reserves -- money in a bank or money market fund that would cover day-to-day expenses for three to six months, Barry said.

While such a cache of cash can help you cope with a layoff or a family or medical emergency, it also will make it less likely that you'll have to tap retirement savings or other long-term investments.

For many Americans, personal security has become the paramount concern since Sept. 11, said Faith Popcorn, head of the BrainReserve trend forecasting firm in New York and co-author of the newly published "Dictionary of the Future."

She also expects to see some people shifting their investments from the stock market to real estate.

Still, most Americans need to look at the basics -- regular savings and long-term investment in stocks, which have outperformed other investments since the Great Depression.

In these turbulent times, when interest rates are low and the markets are down, should people reduce their savings in self-defense?

"If you think that, you should see a shrink because you're being self-defeating," said Avi Horwitz, a New York accountant who teaches in the National Association of Investors Corp. program.

Horwitz argues that Americans save too little, underestimating the costs of their children's college education as well as their own needs for retirement. And he points out that there are real bonuses to be earned by putting money in tax-favored accounts such as 401(k) retirement plans.