Dos and don'ts for dealing with economic instability

Economic crisis. Market meltdown. Government bailout. All these terms being bandied about these days probably have you wondering whether you should stuff your money into your mattress and, while you're at it, hide under the bed.

You shouldn't do that, nor should you panic. Regulators are taking swift action to bring stability to the market. The best thing you can do is ride out the short-term ups and downs with just a few prudent adjustments where necessary until it all shakes out.

Here are 10 recommendations from the money experts at Consumer Reports on what you should and shouldn't do as the financial events unfold. We'll be providing more specifics in the upcoming days.

What you should do

• Check your safety nets. Government programs to protect investments, banks and credit union accounts, insurance and other assets are reassuring in times like these. But these safety nets have limits. So be sure you know what they are and how to maximize the protection they offer.

• Follow the news. With swinging markets and new regulatory initiatives, things are changing quickly. For example, last week, with rising fears that money market mutual funds were at risk of "breaking the buck"—falling below $1 net asset value—the government established a temporary guaranty program to prevent that from happening. So don't act on the latest news or assume that what was true yesterday is still the case today.

• Get your finances in order. There's never been a better time to make a budget and start paying down your debt, credit card and otherwise.

• Rethink your plans to retire. If you're expecting to retire soon, consider holding off for a while, if possible, until things calm down. That will give you time to reassess and, if need be, modify your plans.

• Call your financial adviser. With end-of-the-year tax planning an annual ritual, now is a good time to make an appointment with your tax adviser no matter what the economic outlook. He or she may have some advice on how to tweak your finances as you ride out the current storm.

What you shouldn't do

• Bail out. Dumping your stocks or equity mutual funds now, when values are especially low, is simply guaranteeing that you'll turn paper losses into real ones. Even if there's more downside to come, staying on course often pays off during times of economic uncertainty.

• Stop saving. Those regular contributions you've been making to your savings or retirement accounts are an important part of good financial discipline, and there's no reason to stop them now. We've long recommended a strategy of dollar-cost averaging your investments—making periodic contributions to your accounts, regardless of where the market is heading. That advice is as good as ever.

• Speculate. While lower prices for investments create opportunities, betting on the markets can easily get you into trouble, especially with the wild swings we're seeing now. Small, measured investments are usually better than large, hasty ones intended to make a quick killing. Be especially wary if you get tips from e-mail, the Internet, or elsewhere for certain stocks, commodities, and other "once-in-a-lifetime" opportunities.

• Take on new debt. Be careful about acquiring new debt. Economic downturns can affect job stability and investment income, making it difficult to determine how much debt you can handle. If you must borrow, say, to put a child through college or make an emergency repair to your home, be doubly sure that you've examined all the options and risks, especially if you're planning to use the equity in your home.

• Stop living. Although these times demand extra caution, there's such a thing as over-reacting. Whether it's buying gifts for the holidays or taking your family on vacation, life has to go on. And some cutbacks can have negative consequences for your wallet, such as putting off maintenance for your house or car or canceling insurance policies. So don't overreact. Instead reflect carefully and, where necessary, adjust.