– Boost cash reserve. In the few months that McLeod has until she finds out if her job is renewed, she needs to get serious about saving. She has the potential to create an emergency savings of more than $10,000 by September. She must first consolidate her money market and savings accounts ($5,680). Then she must commit to putting $500 into this account each month, which is doable once she curbs her spending. Clark also suggests she put the $2,000 Financial Fitness Contest winnings into the account. If her job is renewed, McLeod should continue with this plan and save at least a year’s worth of living expenses.
– Cease stock contributions. Clark says McLeod should stop contributing money to her stock account for now. “She doesn’t have the capital to lose to invest at that level,†he says. Investing properly in individual stocks is time consuming. You need to have the time and the drive to do the necessary research to make well-informed stock selections. “The best approach for her to invest is through exchange-traded funds [ETFs] because the expense ratios are less than mutual funds,†he explains. Once she has job security she can begin to look to sectors such as global, international, S&P 500 index, and NASDAQ 500 index ETFs. She needs to get exposure in large-cap and growth-oriented investments. “This reduces her risk,†Clark says. If her current job is secured come September, McLeod can resume contributing to investments outside her retirement funds as well as explore ways to invest inside her 401(k) account to ensure she has a diversified portfolio, Clark adds.
– Seek mortgage assistance. McLeod is up-to-date on her mortgage, which is $1,166 a month, but her mortgage is underwater, which means she owes more on her home loan than the home is worth. If she beefs up her emergency fund she should have enough reserve to pay all her expenses, including the mortgage, for four months if she indeed finds herself unemployed by year-end. But should her unemployment linger and she falls behind on mortgage payments, she should seek help from groups such as the Neighborhood Assistance Corporation of America or through government programs. Another option would be to rent out one of the bedrooms to help offset costs and supplement her income.