Saving and investing: Stay on track

Headlines about panicked stock traders around the globe and recession in the U.S. have Anna Peters worried.

“I understand that it’s bad news, but I don’t know what it means for me,” said the 26-year-old nonprofit worker in Minneapolis.

She probably hasn’t heard the economist’s one-liner: “A recession is when your neighbor loses his job. A depression is when you lose your job.”

I don’t think it’s very funny, but it gets to the simple truth about the economy: Someone is always getting ahead, and someone is always falling behind. How good or bad things are for you personally depends on what side you find yourself.

It takes a while to diagnose a recession, leaving plenty of time for debate among furrowed-browed analysts. Where the stock market’s headed in the short term is anybody’s guess. But even bears like investor and market historian Steve Leuthold expect we’re in a mild recession and that stocks will begin to recover by midyear.

So I think it’s safe to say that we’re not suffering through the next Great Depression. And it’s wise for consumers to concentrate on what they can control: their saving and spending.

For investors such as Anna, who are just starting to save for their future, the advice doesn’t change with the market’s direction: Don’t panic, and keep investing on a regular schedule. Avoid the tendency to bet big-time when the market’s in the heavens and sell when things are going to hell.

“The problem is that it is often most difficult to work up the courage to buy when the mood is so overwhelmingly negative,” RBC Dain Rauscher analyst Bob Dickey wrote in a note earlier this week.

Certified financial planner Charles Buck of Woodbury, Minn., puts buying stocks on the dip in a context we can all understand: “If Best Buy took 20 percent off their big-screen TVs, you wouldn’t be able to get in the place. Wall Street has a sale, and nobody shows up.”

Mai Her of St. Paul, Minn., isn’t so worried about the stock market. “There’s eventually a high and a low, and once it hits bottom it will come back up like it always does,” she said. But she is worried about “inflation going up and raises not following.”

With prices for necessities such as groceries and gasoline rising, this is where many of us are feeling the pinch. The best advice is to try to keep fixed expenses as low as possible in order to maintain some wiggle room. That’s easier said than done for many of us set in our lifestyle and stuck with our expenses. But for those just starting out, spending less than you earn is a critical skill.

One place that prices are falling is in the housing market. And for that, attorney Marcus Hinnenthal, 29, is thankful. “I was starting to get concerned five years ago, seeing the way prices were going, that I wasn’t even going to be able to afford a house. But now it seems like it’s starting to become a little more realistic,” he said.

Not only that, but the slowdown has increased the inventory on the market, and mortgage rates are once again at historic lows.

Interest rates should be dropping on credit cards and home equity lines of credit as well, thanks to the Federal Reserve’s rate cuts. That’s good news for strapped consumers who could use a few bucks shaved off of their monthly payments.

Bill Hardekopf of the Web site www.lowcards.com also points out that banks may feel more comfortable lending money at the lower rate, loosening their coffers and approving more credit card and loan applications.

Unfortunately, lower interest rates penalize savers. Money hunkered down in savings accounts and certificates of deposit will earn less in interest. But don’t let that stop you from saving. A stash of cash is a consumer’s best line of defense in uncertain financial times.

XKara McGuire writes about personal finance. Write to her at kara@startribune.com or at the Star Tribune, 425 Portland Ave., Minneapolis, MN 55488.