In a relatively short period of time, Americans have seen a collapse of housing prices, the near-collapse of the banking system, double-digit unemployment and various boom-and-bust cycles in financial markets. You may not know what's coming next, but bad news shouldn't exactly come as a surprise anymore.
You can't protect against everything, but there are steps you can take to be better prepared to react when surprises threaten to impact your personal finances. Here are six things you can do to be prepared:
- Draw up an investment wish list. Suppose the stock market fell to half its current level tomorrow -- what stocks would you most like to own at drastically discounted prices? After all, Apple, Google and other standout companies don't come cheap. Chances to buy them at reasonable prices are rare and fleeting. For example, the S&P 500 hit bottom in early 2009 after the financial crisis, but by the end of that year it had bounced back by 50 percent. You can prepare for sudden price drops by making a list of what stocks you'd most like to own, and what you would be willing to pay for them.
- Be equally ready to sell. Just as you should be prepared to snap up buying opportunities, you have to be ready to sell when the time is right. When you first buy a stock, you should have some plan for what price you would sell the stock for, or under what conditions.
- Build an emergency fund. Separate from your retirement fund or any other savings earmarked for a specific goal, you should have an emergency fund -- typically, a high-yield savings account or similarly safe and accessible vehicle that could provide you with about six months worth of living expenses in a pinch.
- Create a certificate of deposit rollover schedule. Have your calendar give you a reminder a couple weeks before your CDs are due to mature, so you can make an informed decision about what length CD you want next, and take the time to shop for the best CD rates.
- Do a phantom job search. Unless you have built up a substantial portfolio of investments, your career may be your most valuable asset simply because of its ongoing earning power. You should manage your career actively, as you would an investment. Without actually applying for anything, you can do a phantom job search in which you look at the job market to see how many openings are out there that you'd be qualified for, and what they pay. Strong demand for your skills could strengthen your negotiating position at your current employer, while weak demand may remind you to go the extra mile to make sure you are valued.
- Update your training. A phantom job search can also tell you if your training is out-of-date. If so, don't wait until you're out of a job to improve your credentials. Doing it now could improve your performance in your current job, and make you immediately competitive if you have to re-enter the job market.
In addition to helping you weather emergencies, these steps may also help you do better if financial conditions go smoothly -- which may be the biggest surprise of all.