The new rules for personal finances

Key Points

The upheaval in our current economy is changing the ground rules for skillful handling of personal finances. Some of the time-honored methods for building and maintaining a secure financial future for you and your family need to be modified while today's unpredictable financial crisis runs its course.

Here are seven tips from the experts that will help you to come out on top once the financial storm has abated.

Don't follow the herd

"Today's economy has caused many investors to realize that their tolerance for risk is not as great as they thought during the stock market boom of 2002-07," said Bruce R. Barton, certified financial planner (CFP), San Jose, CA. "As a result, many are lowering the amount of stock they hold in their portfolios. Reducing risk by decreasing stock holdings may be appropriate, however, people are living much longer now and a typical retired physician will live on his or her portfolio for 20 years or longer."

Barton points out that a portfolio must have a growth component to keep up with inflation over the long term. "That means portfolios should include a moderate amount of stock. Physicians should think carefully before changing their long-term commitment to stock investments," he said.

Pay down your debts

For more than a generation, buying on credit and building up a heavy debt load has been regarded as an acceptable, even shrewd, financial philosophy. What better way to accumulate all the luxury items that define the good life for Americans?

But that was then and this is now.

"Under normal financial times, monthly consumer debt payments usually act as speed bumps, slowing us down or acting as a mere nuisance," said Scott Crawford chief executive officer and founder of http://DebtGoal.com/, San Francisco. "With today's economic and financial uncertainty, monthly debt payments can derail our financial future should further unforeseen events take place."

Crawford recommends reducing this risk by aggressively paying down total debt and interest costs, including such debt as auto loans and mortgages. "Traditional logic holds that a mortgage is 'good debt' and that the tax subsidy makes it low cost," said Crawford. "The truth is that right now, paying down mortgage debt (even after the tax subsidy) may likely have a higher return than the stock market. And the return is guaranteed."

Also, wherever possible, you should try to minimize student debt, said Crawford. "Although conventional wisdom is that student debt is 'good debt,' recent studies have documented the harmful effects of too much student debt. Encourage your children to consider lower-cost but still high-quality college options to hold down debt. That will help to ensure that their education remains a good investment."