Economic Conditions Have Changed Some Personal Finance Rules

Kimberly Watson, Editor in Chief
April 13, 2012 /

Much has changed regarding finance rules in post 2008 and it may be argued that this particularly applies to the philosophy that any available liquid finance, should automatically be placed into a retirement fund.

Then the plug was pulled on the housing boom and as then, it is now difficult for any advantage to be taken of mortgage rates, which are at historically low levels. If you have applied for any type of loan, you will appreciate how aware and careful the banks have become regarding their finance rules. Reports show that this applies even to potential borrowers with significantly good credit profiles, or with a 20% deposit.

With a severe shortage of available credit facilities and more stringent finance rules, the need is for liquidity, which would help you in securing a refinance or mortgage.  Therefore you could consider not taking the full limit from your 401(k) but consider contributing the same amount as your employer will accept and then making the balance available as a cash reserve.  This could then be used as an initial payment or escrow account for a loan application.

If you do not have a 401(k) then a recommendation is to set aside 6% towards your retirement and an amount for a reserve fund, utilized for non-depreciable assets. This should not be regarded as any detraction from your retirement. It is not money that is being used for frivolous purposes, but instead investing in your future. You are improving the opportunity of taking advantage of unusual low interest rates and exceptionally low sales prices.

Versatility could be a great asset, especially in an adverse economy and when traditional finance rules are seemingly showing weaknesses. It is therefore a positive and wise decision to match your decisions to the prevailing conditions.


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