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Weathering bad times

Late planning is better than no planning

Knight Ridder Newspapers

With the economy plummeting and organizations downsizing, workers worried about losing their jobs should do more than update their resumés; and peruse the want ads. They should review their personal finances.

Financial planners often say the best time to prepare for tough financial times is in prosperous times -- in fact, they make a living off that notion. Still, late planning is better than no planning at all.

"I know this is 20/20 hindsight, but the best way for people to deal with a downturn is, with the exception of a housing payment and maybe a vehicle, not to have revolving debt," said Jesse Hurst, a financial planner with The Millennial Group in Akron, Ohio.

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The ideal situation for someone at risk of losing their job is to have six to nine months worth of cash reserves and to be debt-free, Hurst said.

Unfortunately, those circumstances elude most people, who indulged in the spending orgies of recent boom times and now find themselves trying to pay down credit-card balances.

"The seeds of destruction are sown during good times," said Bruce Jentner, financial planner and president of Jentner Financial Group in Ohio. "(People) don't make good decisions. When everything looks great, people get too highly leveraged on debt or too dependent on two incomes." Hurst suggests those people work to pay off their debt before they try to save. "If they're paying 15 or 18 percent interest on credit cards, they'll get a better return on their money if they pay it off," he said.

After debt is wiped away, it's time to begin building an emergency fund either in a money market fund or bank account. Start by having a certain amount of money automatically withheld from your paycheck or deducted from a checking or savings account.

Somewhat surprisingly, financial advisers recommend that homeowners who anticipate a decrease in income open a home-equity line of credit.

"It's much easier to get a home-equity credit line when you don't need it than after you get laid off," Hurst said. "You don't have to tap it unless you really need it.

It should only be used in a last-ditch, emergency type situation, if you've exhausted all other forms of cash."

A homeowner with a $60,000 mortgage for a home valued at $100,000 likely would qualify for a $20,000 line of credit.

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At 6 percent or 7 percent interest and tax-deductible, such a credit line would be better to use than a credit card.

After the emergency fund is in place, the next step is to determine how much is needed to cover monthly expenses.

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