Smart Money Moves to Make in a Tough Economy

With all the bad news about the economy lately, you may be feeling a little helpless when it comes to your finances.

While you can't control the stock market, or the direction your portoflio is heading on any given day, there are some smart moves you can make with your money during a tough economy.

It's more important than ever to have an emergency fund in place during a slow economy... in case you lose your job, have unexpected medical expenses, or have a major house repair. The last thing you want to do is to sell investments while they're down, or rack up credit card debt.

The general rule of thumb is to have three to six months of living expenses set aside for emergencies, but you might increase that to six to twelve months if you're nervous about the economy or worried about the safety of your job. You should keep this money in short-term, liquid assets, such as CDs or a savings or money market account.

If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt. Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent).

Then make the minimum payments on all of your credit cards except the highest interest rate card. Apply as much as possible to the highest interest rate card until it's paid off, then move to the next highest interest rate card, and so on.

In addition to funding your emergency fund, you should also continue to save for retirement and other goals.

Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down. When the market is down is actually the best time to invest. Remember "buy low, sell high"? Well, the time to buy low is when the market is down! Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.

I'm always amazed at how many people have no idea where their money goes each month. How can you reach your goals if you don't know where your money is going?

While budgeting is a bad word to most people, it is important that you at least know where your money is going so you can make informed decisions about where your money should go in the future.

If you aren't already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.

Do you know how much you need to save for retirement? For your children's college education? For that matter, do you know how much you need to set aside for holiday spending?

Having a plan gives you more control over your finances because you know exactly what you need to do to reach your goals.

Unless you work for the federal government, tough economic times usually mean job layoffs and higher unemployment.

Invest in yourself by taking classes to improve your skill sets, or even going back to school to get your degree.  The money you spend on your education could make the difference between employment and unemployment, and should pay off in the form of higher salaries over your lifetime.