This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Avoiding Your Own Fiscal Cliff

Attention in Washington is now focused squarely on the upcoming fiscal cliff -- a package of deficit reduction measures that would slow the economy through a combination of tax increases and spending cuts. But this looming obstacle should also serve as a reminder for consumers to review their own financial standing.

While the nation faces its fiscal cliff at the beginning of next year, most Americans are likely to run into a fiscal cliff of their own at one time or another -- a sudden drop in income or rise in expenses that can overwhelm their household budget unless they are prepared. Here are four individual fiscal cliffs that could hit your budget, along with some advice on preparing for these events.

1. Loss of a job

Relating the potential for losing a job to the budget crisis in Washington isn't just an analogy -- the two might be related. The Congressional Budget Office estimates that next year's fiscal cliff would send unemployment back up near 9 percent. The National Association of Manufacturers sees the consequences being even more drastic -- their estimate has unemployment rising to 12 percent if the fiscal cliff isn't avoided.

In either case, it looks like more Americans may be at risk of losing their jobs next year. Building an emergency fund to weather this kind of storm is just common sense. According to the Bureau of Labor Statistics, the median length of time for which a person is unemployed is about 20 weeks, though it can be much higher for some professions. This points to the wisdom of having about half a year's worth of expenses saved up in an emergency fund to help see you through a possible stretch of joblessness.

2. Damage to your car or home

While you may have insurance to bear the heaviest costs should an accident damage your car or home, depending on your policy you may face a substantial deductible payment in such an event. You should know what those deductibles are, and try to keep at least that amount in savings.

As with emergency funds for unemployment, money set aside in case of an accident needs to be accessible at any time, so savings or money market accounts are suitable for this purpose. You may also take advantage of higher CD rates on longer-term CDs, if you can find a CD with a reasonably mild penalty for early withdrawal.

3. College costs

While college can be very expensive, at least it is a foreseeable expense that you can save up for over a long period of time. In fact, if you start once your kids are born, you should have time to include some growth investments such as stocks in these savings. Be sure to check out, a government website detailing financial aid options.

4. Caring for elderly parents

The so-called sandwich generation is faced with not only financing their children's education, but often also with helping to care for their aging parents. Elder care can be extremely expensive, so you and your parents need to develop a long-term plan for financing it so it doesn't drain both of your resources.

Sometimes these personal fiscal cliffs are foreseeable, and sometimes they aren't. In either case, building a reserve of savings is the best way to survive encountering one.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.24 0.00%
FB $117.81 0.00%
GOOG $701.43 0.00%
TSLA $211.92 0.18%
YHOO $36.94 0.00%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs