Map out your finances

[BSClay]

Personal finance can seem murky and tortuous, and without a good road map it’s easy to feel lost.

The current recession makes careful handling of your money especially sensitive, so heed these tips as you make financial plans for the future:

• Invest. If you have extra money after paying the bills and funding your tax-deferred retirement plan to the max, think about investing the remainder rather than spending it. In the long run, you’re likely to find compounding returns far more rewarding.

• Strengthen your financial relationship with your spouse. If you’re in a stable relationship with a spouse or partner, consider strategies like combining more of your assets, opening investment accounts for retirement purposes or your kids’ college costs, and diversifying your investment strategies. You don’t have to merge everything—remember that 401(k) and IRA plans can’t be combined—so you’ll still have some financial autonomy.

• Save for college. The right strategy to save for your children’s higher education depends on several factors: your tax bracket, the investment flexibility that you require, and the amount you have to save. You may think your kids can apply for financial aid, but remember that many colleges take education savings into account when calculating a family’s need for grants or loans. Explore 520 savings plans, Education IRAs, or taxable investment accounts.

• Protect yourselves. There’s no such thing as total job security, so financial advisers recommend an emergency fund. Calculate what your fixed expenses are. Take a look at the job market in your field so you can estimate how long you may be unemployed if you lose your job, and start making regular deposits into a dedicated “lost job” account.