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Use this checklist to prepare for the rough patches

Financial strategy isn’t just about achieving long-term goals, such as retirement. It can also help you ride through personal rough spots in the short term, like a job loss or a recession. Here’s a basic guide to help you establish a solid financial safety net that can weather any unexpected downturn:

1. Assess the likelihood of reduced income.
  • How much of your pay is variable, such as bonuses or commissions?
  • If you are self-employed, can you tighten up on money owed to you and collect it more quickly?

2. Assess the risk of job loss.
  • Will your emergency fund cover your expenses for up to six months?
  • Can you expect a good severance? Be ready to take advantage of opportunities by tuning up your resumé and network of contacts?
  • Consider getting a bare-bones policy now that can be increased later.

3. Is early retirement an option?
  • Will your employer subsidize early retirement?
  • Can you live comfortably on your savings and pension? Do you have a plan for using free time?

4. Prepare your net worth statement.
  • Are any loans due soon?
  • Will that help or hurt cash flow?
  • Should your investment mix focus more on security and less on growth?

5. Assess your credit status.
  • Set up or increase a line of credit.
  • Clear credit card balances or obtain a personal loan at a lower interest rate.
  • Lock up all but one credit card – the temptation to use them rises as income declines.

6. List major expenses for the next year.
  • Which can be delayed?
  • Which will be bargain-priced? Set priorities in case income declines gradually.

7. Consider tax-loss selling.
  • Can investment losses in the current year recoup capital gains tax paid in the previous three years?

8. Bargain hunt for your portfolio.
  • What investments would you like to own? Make a list with target prices.

9. Profit from lower prices.
  • Are you entrepreneurial? Watch for distress-priced businesses or assets. Economic downturns often bring lower housing prices and renovation estimates.

With professional advice, you may be able to find other effective ways to protect yourself or improve your financial position.

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Financial strategy isn’t just about achieving long-term goals, such as retirement.
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