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Do's & don'ts for 2009

WITH all the bad economic numbers out there, what is the small man to do? The right financial decisions are important most of the time, but with the worst economic bogeyman out there to catch the unawares, it is more crucial today.

These are some common sense things that you may want to include in your new year resolution.

1. DON'T TRY TO ANTICIPATE WHATS COMING.

The banking meltdown is so unusual, even the experts are not sure what is going to happen, so don't try to predict the future when it comes to investment. Don't for example sell stocks now and then buy again when the market hits bottom, because no one knows when that will be.

2. DO KEEP ENOUGH CASH AVAILABLE.

Even if you are not worried about losing your job, you may want to keep some handy cash for re-assurance. How much depends on what's comfortable for you: to give you some idea, some experts say it should be six to nine months of living expenses. With extra cash, you don't have to delve into your investments or retirement plan in an emergency.

3. DO LIVE BELOW YOUR MEANS. SAVE.

Investing for the future is only possible if you have some money left over at the end of each month to sock away. Look at how you can cut your spending by cutting down on your bills and other ways.

4. DO PAY OFF EXPENSIVE DEBTS.

Rather than investing your money, you first might consider paying off debts, especially those with high rates or those for which interest is not tax-deductible. The avoidance of interest will likely save you more than your investments would have earned.

Paying off a car loan with 7 per cent interest provides an immediate 7 per cent return, a return that is not [currently] available through most asset classes. Credit-card debt is so expensive that most planners say it is always the first thing people should pay off.

5. DO TRACK YOUR SPENDING.

It's very easy to lose sight of where your funds are spent. You can buy software to track your spending. Most of us don't know where our money goes.

6. DON'T FOLLOW THE HERD.

"Be fearful when others are greedy, and be greedy when others are fearful," says legendary investor Warren Buffett. Warren Ward, an adviser in Columbus, Ind., agrees, advising his clients to ease back into stock or bond markets rather than seeking the safety of cash or Treasuries as many other investors are doing now. "Do your own thinking and don't allow yourself to be panicked into taking an action you'll regret," Ward says.

7. DO WRITE DOWN AN INVESTING PLAN AND BUDGET, AND STICK TO THEM.

A budget can help control spending and boost the amount of money you save each month. An investing plan takes the emotion out of your investing decision. Investing systematically is especially important during market downturns.

8. DON'T FORGO NECESSARY INSURANCE.

You can save some money by increasing your car insurance deductible or forgoing life, disability or home insurance, but you could also be left penniless after a serious emergency. Full coverage isn't always necessary, but make sure you're protected in a worst-case scenario.

9. DON'T INVEST IN ANYTHING YOU DON'T UNDERSTAND.

This financial crisis has demonstrated the dangers of too much complexity in the investing world. Investors lost big on asset-backed securities and other investments that in many cases they never really understood in the first place. If your adviser or broker can't adequately explain an investment in a few sentences, maybe it's not for you.

10. DON'T TAKE MORE RISK THAN YOU CAN HANDLE.

Some investors will react to 2008's losses by trying to be more prudent and conservative in the future. Others, however, will try to win back their losses through bold, risky bets on the next big thing.

The past year has given investors an idea of how bad market conditions can get. In the future, investors may want to evaluate how much risk they're really willing to take and how long they're willing to wait to get outsize returns.

11. DO REVIEW YOUR CREDIT REPORTS.

In a downturn, the Government may cut down funding rates to revive the economy in 2009. That could be a great opportunity to refinance your mortgage, but only if you have a solid credit score. Check your credit report for any errors now because trying to fix it takes time and you don't want to be trying to fix your report while you are in the middle of a mortgage application. Everyone is entitled to get a free copy of their credit report once a year.

If you live in the Klang Valley, you may obtain the credit report from the Customer Service Centre, Laman Informasi Nasihat dan Khidmat at Bank Negara's head office at Jalan Dato' Onn. If you are from outside the Klang Valley, you may apply for the credit report through any Bank Negara branches in Johor Bahru, Kuala Terengganu, Pulau Pinang, Kota Kinabalu and Kuching. Visit creditbureau.bnm.gov.my online for further information.

You can also check credit-related information compiled by companies like CTOS Sdn Bhd, whose services are often used by financial instutions when assessing loan and credit applications. Go to www.ctos.com.my and follow the instructions for the free self check.

12. DO COMPILE THE NECESSARY RECEIPTS FOR YOUR 2009 INCOME TAX RETURNS

To take advantage of the many income tax deductions available to individual tax payers, you will need to show receipts as proof. Expenses like medical bills for your parents and purchase of books, sports equipment and a computer are eligible deductions. Start compiling the recipts now to save you the headache later.

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