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10-Step Personal Financial Recovery Plan

If you are one of those whose fortunes took a dive at the end of 2008, you are not alone.

With the market down over 40% at the end of 2008 and recently up more than 20%, it is no wonder that the average person's head is spinning. People are scared, angry and confused about what they should do next.  Here are some tips:

 1. Assess your damage.  Don't be like an ostrich -- with your head in the ground and your feet in the air.  You've got to take the time to review all of your financial assets in order to assess the damage.   It is only through knowledge that you can start to assess the damage and move  ahead to shore up your losses and plan for the future.

2. Get on a budget.  Belt-tightening should be your new plan of action. Put pen to paper and closely examine your monthly expenses.  See what can be eliminated, like too much dining out, and what can be placed on hold, like the purchase of that new computer. There are web sites that can help such as Wesabe.com, Quicken.com and Finance.Yahoo.

  3. Learn to be the monitor of your money.  With the creation of 401K plans 401K plans 401K plans 401K plans 401K plans

many people have been placid participants who have not learned the

importance of reviewing their portfolio and making timely adjustments.  You should look at your 401K and stock portfolio as fluid not fixed --review them for diversification and rebalance on a quarterly or annual basis.

  4. Reduce your debt. Playing the credit card game can be a dangerous one. Remember that "cash is king" and when possible, pay for what you need by cash not credit.  And better still, eliminate any unnecessary   spending.

  5. Plan for the worst.  With the unemployment rates continuing to soar,

the rule of thumb has always been to try to save an amount equal to at least six months of living expenses -- just in case.  This is not 401K money, since there are penalties to withdrawal from 401K funds. This is just a regular savings fund or money market fund that is easily accessible without penalties

  6. Set short-term financial goals.  Be optimistic.  Our country has weathered recessions before and those who have reset their financial goals have been ready for when the economy moves into positive territory.  So, instead of burying your money in the back yard, decide what percentage of your money you feel comfortable keeping in cash and the remainder diversify in mutual funds.

  7. Set a stock market strategy.  Despite the enormous pain most of us have

suffered during the last 18 months, the stock market, like the economy, will not remain down forever. Be sure to maintain a diversified approach that includes mutual funds, annuities, stocks, bonds and cash. It may be smart to follow Warren Buffett's advice: Buy when Investors

are fearful, sell when Investors are greedy.

  8. Hire a financial planner.  A good financial planner becomes your trusted "primary advisor." They provide business, legal and insurance services as well as organizing, securing and simplifying the financial part of your life so that you can spend the rest of your time doing what you value most.  

  9. Consider a reverse mortgage. Tough times require wise choices. For seniors, a wise choice may be to covert your home equity into a reverse mortgage which is designed to allow seniors to convert part of their home equity into tax-free income, 

  10. Take action. Work on the plan that you've established and never give up.  Remember, Consistency will always outperform occasional brilliance.