4 Fiscal Steps to Take Right Now


This week has brought day after day of some of the worst financial news the nation has ever seen -- plummeting stock markets, an unprecedented downgrade of the U.S. credit rating, and the threat of a new recession before many people had even really seen the end of the last one.

In times of trouble, it's always tempting to wait until things calm down. But often, the best opportunity to significantly improve your financial footing comes during the worst of the turmoil. You may not be in the perfect financial condition to take aggressive action on all of these points, but even small steps will help you stabilize your financial future.

1. Get your financial house in order

The one saving grace of the slow economy has been that interest rates have stayed low, which in turn has made it easier for debt-burdened Americans to make ends meet. But with the credit downgrade on U.S. debt, higher interest rates may be coming down the road -- and they may get here sooner than you'd like.

If you have big balances on your credit cards, payday loans, or other "bad" debt, now's the time to get it paid down. With many credit cards now carrying variable interest rates, you'll face a higher bill as soon as interest rates rise. Get those balances paid down now, and you'll not only save yourself a fortune -- you'll also get yourself in a better position to do smarter, more productive things with your money.

2. Start saving for your retirement

If you're having trouble making ends meet, setting aside even a small part of your paycheck toward an uncertain future may seem impossible. But with big changes potentially in store for Social Security, Medicare, and other entitlement programs, you need to be prepared for possible cuts before they happen.

That means taking responsibility for your own retirement through an IRA or 401(k) retirement account. Many employers offer 401(k)s that allow you to contribute part of your paycheck automatically. And with the stock market down, you'll pick up shares much more cheaply than you would have just last month -- boosting your long-term returns.

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3. Think about housing

Apart from the stock market, the other scary place for money lately has been in housing. Prices have fallen dramatically over the past several years, and in many places, the bottom still isn't in sight. If you don't already own a home, you may feel like you dodged a bullet -- and figure that there's no point in ever trying to follow the American dream.

But if you start saving up for a down payment now, you'll give yourself two legs up over the competition. First, you'll have time on your side, as continuing drops in prices reward you for your patience. More importantly, when the time comes to buy, you can have enough set aside to satisfy even the stingiest banks in letting you have a mortgage. That's an edge that will get you into the house of your dreams.

4. Start setting money aside for your kids' college education

With all the other demands on your money, saving for your children's college expenses may seem like a low-priority item, especially if your kids are young. But again, with stocks low, it's a great time to start contributing toward their education.

A 529 college savings plan account can be a great way to start. Each state has at least one plan, but you're not locked into your own state -- most plans accept people from around the nation. You'll get the tax break of not having to pay taxes on income and gains on your investments, and if you eventually use the money for college expenses, that income becomes tax-free. Pick a plan that has low costs and good investment choices.

Motley Fool contributor Dan Caplinger loves buying stocks on the cheap. You can follow him on Twitter here.