With all the demands on your money—the needs of your kids and those of your parents, not to mention your own ambitions—it often seems like there’s not enough cash to go around. The solution: Set priorities that are flexible, but not too flexible.
By George Mannes
The economy has taken recent and multiple nosedives, so family and friends may be giving you all sorts of unsolicited financial advice: Uncle Joe touting the benefits of gold, PTA moms declaring that they're cashing in all their investments. Are these words of wisdom? No, says Eleanor Blayney, a consumer advocate for the Certified Financial Planner Board of Standards. During these tough, unpredictable times, bear in mind these smart money don'ts.
DON'T get caught up in the gold rush.
Buying commodities (cotton, oil and-- the big one these days-- gold) may earn you good returns in moments of economic uncertainty. But the potential profit comes with a lot of added risk. Prices for raw materials tend to move in cycles, so by the time casual investors catch on, it's usually too late to benefit much-- and you may be just in time to lose your savings, says Jack Plunkett, chief executive of Plunkett Research, a market-research firm in Houston. A more measured approach? Consider looking for mutual funds that will benefit if a particular commodity goes up. (If you want to invest in oil, say, buy shares in a mutual fund that emphasizes energy companies.)
DON'T borrow from your 401(k).
Raiding your account is easier than sweet-talking a bank. But this is one of the last places you should borrow money from, especially in precarious times, says Sheryl Garrett, founder of the Garrett Planning Network, an organization of fee-based financial advisers in Shawnee Mission, Kans. If you lose or quit your job, the loan will come due immediately. And if you're 59 1/2 or younger and can't repay the balance, you will owe taxes and a 10% penalty for early withdrawal.
And, above all, DON'T cash in your mutual funds.
"This is one of the worst panic moves you can make"; says Blayney. If you sell when the market is down, you miss out on the chance to potentially recoup that money when stocks rebound.
Contact Naperville Tax Advisor, Susan S. Lewis Ltd., for additional information, her mantra is to help you keep more of what you earn.
From the August 2010 issue of Money
© 2011 Time Inc.
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