By BRUCE ROWLAND
t takes a lot of sound advice to adjust to new economic realities caused by events that have been termed the Great Recession and the Decade from Hell.
But area financial experts are quick to point out strategies that will help consumers overcome current obstacles such as an unpredictable investment climate, reduced levels of home equity and tightened conditions, limits, fees and rates on credit cards.
With a new decade and a retooled economy on the way, there's no time like the present to rework the family budget to assure a greater chance for long-term, stable prosperity after what has been for many a wrenching adjustment.
"My first piece of advice is to avoid and be careful with the use of debt to finance any purchases," said Alexander Edwards of Alexander Edwards and Co. Certified Public Accountants and Business Consultants of 47 Dock St. in Plattsburgh.
"There are only two things you should finance, namely your vehicle and your house."
He said any other purchases should come out of money that has been saved or that you currently have on hand. Using a credit card as a convenience to supply everyday needs such as food is fine as long as the card is paid off in full each month, which requires a lot of discipline.
"If you do not follow this practice, you end up paying several times the original cost in interest," he said.
Secondly, Edwards emphasized, a key goal is to increase your rate of savings. After aggressively paying off credit-card debt, he said, retirement savings must become a key goal.
"Social Security was never meant to be a retirement income," Edwards said. "It was intended to provide a safety net against poverty."
Due to the mounting national debt and the government's need to reign in entitlement spending, Social Security benefits may have to be cut at some time in the future leaving families even more dependent on their own savings and investments.
"The first step is to make sure that you contribute enough to your company's retirement plan on your own behalf so that you get the maximum amount of employer matching contributions, typically in the range of 3 percent," Edwards said. "If you can afford more out of your current earnings, target a 10- to 15-percent contribution."
This is especially beneficial because the difference in your paycheck will be softened by the resulting tax benefits, as these contributions are deducted from taxable income. For example, a 15-percent retirement contribution may only result in a 10-percent reduction in take-home pay.
Also, he said, for parents anticipating college costs it's important to start saving early and keep a child's college expectations realistic.
"A couple years at a community college followed by a state university education will be a much smaller nut to crack than an Ivy League university," Edwards said.
He also said having a child contribute to their education by taking out a college loan for a portion of it can make them financially responsible and a more serious student.
In a new, more financially well-grounded era, irresponsible habits of the past need to be broken.
"The high-flying days of using your ever-increasing home and investment values as a piggy bank, ready to be raided to allow you to live beyond your means, has come and gone," Edwards said. "The sooner you realize that, the better you will fare."
At Abbott, Frenyea, Russell and Coffey P.C. of 134 Boynton Ave. in Plattsburgh, Robert Frenyea said that, in an era of low interest rates, it can be very beneficial to refinance a home if you're going to be staying in it for at least a four-to-five-year period. Even one point of interest reduction helps, but sometimes you can realize three to five.
"It makes a big difference," Frenyea said.
But those low interest rates can also cause investments to have a meager rate of return, and with the economy on a more solid footing and coming inflation a possibility, Frenyea believes the stock market looks more attractive.
"It seems like things are getting a little more positive," he said.
With credit-card companies tightening requirements and pushing up rates, Frenyea agreed that the best thing to do is pay the balances off. But if you can't, and can be disciplined about not running them back up again in the future, home-equity loans can be found at about 3.5 percent.
"It makes sense to pay (credit cards) off monthly, but if you can't do that, find a way to pay off that balance," Frenyea said.
However, it's important to keep the amount you owe on your house at a sensible level. A couple years ago when people were getting mortgages, Frenyea said, money was way too easy and people got into trouble.
"I have seen people come in with mortgages way in excess of what they should be," he said, adding that if debt is too high a home can't be refinanced.
Also, the coming economy could offer pitfalls such as inflation that people should be aware of, he said, explaining that there's been a lot of easy money in the economy due to the government stimulus and, when unemployment starts dipping, inflation could be a factor.
"I'm optimistic about our area, but I think the U.S. is going to see some problems over the next few years," Frenyea said.
At Donlan & Barcomb Financial and Investment Services at 40 Brinkerhoff St., Robert Donlan advises being a little more cautious about the stock market. He believes that returns of 10 or 12 percent are pretty much a thing of the past, and consumers should look to new ways of investing their money.
"From just an investment perspective, we're looking for yield or dividends instead of growth," he said, adding that it may not be as profitable looking for the latest hot company with expectations of skyrocketing returns.
He said looking for mutual funds that include dividends or checking out municipal bonds may be a good idea, as stockholders aren't as quick to sell shares when they get dividend income, and bond holders won't dump the bonds they hold for tax purposes as readily.
Donlan pointed out that it's been something of a lost decade, with the S&P; average actually down 1.4 percent for the 10-year period rather than producing the steady appreciation that investors were used to seeing.
"I don't think we're going to see high, double-digit returns in the next decade," he said. "I think people need to lower expectations."
With returns less assured, Donlan also said that increasing savings is another key factor that should be employed. Instead of investing 5 percent in a 401k, for example, a 10-percent contribution would be much better.
He said this is especially important as the federal budget deficit grows and policy makers find it unavoidable to cut back on Social Security. This could take the form of raising the minimum age from 62 to something higher, and it will take more to bridge the gap between when a person wants to retire and the age when they are eligible for Social Security.
Also, Donlan said, it's important to resolve to reduce debt in the new economy.
"You can weather a storm if you have less debt," he said.
Terming the government's stimulus program as perhaps a necessary evil, Donlan also predicted rising interest rates will be something to watch as there has been lots of federal money spread around the economy. This means investors should be cautious about investing in the non-municipal bond market, as bonds can go down as rates come up.
"I think it could be a tough five years, I really do," he said.
If investments are made in bond or CDs, they should be done on a short-term basis, or when rates go up, an investor is locked into a lower return and can't take advantage.
"You're going to miss the upside if you lock in for five years," Donlan said.
On the international front, the so-called PIGS countries, Portugal, Ireland, Greece and Spain, have extremely high debt and slow growth, and could trigger the next economic crisis, which could ripple through world economic markets.
The bottom line, he said, is save more and pay down debt, and be content with returns of 5 to 8 percent instead of 10 to 12.
"Everyone wanted everything right now," Donlan said of the pre-crisis boom. "You can't live in debt."
