Most of the economic indicators point to continued slow growth in the U.S. economy. The third quarter gross domestic product (GDP) growth was 2.6 percent, which is an improvement over the 1.7 percent for the second quarter. However, this is well below the accelerated growth levels needed to significantly reduce the national unemployment rate of 9.6 percent.
With the Republicans gaining control of the House, it will be difficult for the Obama administration to pass new federal government stimulus legislation. The Federal Reserve will continue to pump dollars into the economy through its purchase of government bonds, which will keep interest rates low and, hopefully, encourage growth. However, even in the face of slow economic growth, the stock market, which is a leading indicator, is up 12 percent over the past two months and 6 percent for the year.
The overall economy is a mixed bag, but the consensus forecast is for continued slow growth for the remainder of 2010 and at least the first half of 2011. However, even with a slow growing economy, some families are increasing their net worth and working towards achieving their financial goals.
A growth plan
Every family’s financial situation is different, but there are some basic steps that most can take to improve their financial situation during this period of slow economic growth.
Increase your financial productivity
n Aggressively track your family income and expenses over the next three months. After looking at the data, are their ways you can reduce your expenses by 10 percent? Consider alternatives, such as buying clothes during seasonal sale periods, cooking meals at home, or using public transportation. There should be no “sacred cows” expenses that are not scrutinized.
n Build your cash – During periods of slow growth and tight credit, cash is king. Start with your emergency fund in a short-term savings account, with a balance equivalent to 3-6 months of your expenses. Can you save $50 or $100 per pay period? The purpose of an emergency fund is to carry the family through short-term emergencies, such as job loss, physical disability or a natural disaster. Also, an emergency fund will preclude the use of credit cards with interest rates of 18-26 percent or higher.
n Reduce your debt expense – Home mortgage rates are at historical lows. Consider refinancing your mortgage if your interest rate is 2 percent or more over current rates. Shop around, since some lenders are offering low closing costs to refinance. If you have credit card debt, begin to work it down now.
n Keep investing – “Even in a slow growth environment, investments such as corporate bonds and dividend paying stocks can provide a reasonable return at reasonable risk levels, but the key is to keep investing,” states Jim Reed, CFP with Financial Network Investment Corp., in Cleveland, Ohio. Invest fully in your 401K retirement plan and make sure that your investments are diversified and in line with your risk tolerance. However, don’t hold more that 5-10 percent of your net worth in your company’s stock. If you have investments outside your company plan, select a good mutual fund company and go for quality.
n Enhance your employment – If you maintained your employment with the same company during the recession, you probably have witnessed layoffs, reduced budgets and a lot of anxiety on the job. Now, because of lean staffing, there may be opportunities for promotions and advancement. Talk with your manager and mentor about your opportunities for promotion. Make yourself more valuable by taking advantage of opportunities to get additional training and broadening your skill set. Invest any salary increases, overtime pay or bonuses in improving your financial situation.
n Keep your resume up to date and maintain a broad professional network outside of your current employer. There may be some new job opportunities that you may want to consider.
n Keep your family informed – Discuss your financial plans and concerns with your family. Be open and honest and get their ideas for managing the situation.
Grow during slow growth
The reality is that the U.S. is in a period of slow economic growth and will be in this state for the foreseeable short-term future. Some families will financially grow and move closer to their financial goals, while others will financially stagnate or regress. Start today to make the situation work for you and your family.
Michael G. Shinn, CFP, is a Registered Representative of and securities and investment advisory services offered through Financial Network Investment Corp., member SIPC. Visit www.shinnfinancial.com for more information or to send your comments or questions to firstname.lastname@example.org. © Michael G. Shinn 2010.