Being Prepared

Apologies in advance for the long post!

A few days ago, I was doing the dishes after dinner. Outside, there was a heavy downpour, but according to the weather radar, nothing bad was around - a little bit of lightning and thunder off in the distance. Then, bright lightning and the thunder at the same time - it hit near the house. I stood there and waited for the inevitable power failure, but the power stayed on. I thought, "Wow, that's a relief." Then I realized...

The phones were dead and the ADSL that we get through the phone lines was down. We lost the telephone, the ADSL modem and the wireless network router, all through a surge that came in through the phone line. Amazingly everything else electrical in the house survived. I thought I was prepared - everything was plugged into surge protectors. I guess I wasn't prepared for the surge to come through the phone lines. Well, now I am - prepared with a surge protector that also has an input and output for the phone and ADSL lines.

Today, our well pump started dying. Apparently the well pump motor got a surge as well - it just took a few days to show up. It won't be until Monday when I find out the damage (physical and financial). If the cost is large enough, I'll turn it into insurance for reimbursement.

The lesson... you need to be prepared for emergencies. Aside from having homeowners (or renter's) insurance, you should set aside money for these types of issues. This can be called different things....reserves, a rainy day fund, an emergency fund. Financial planners all agree that you should set money aside ahead of time, but opinions differ as to how much. I've heard anywhere from three to twelve months of living expenses should be in this emergency fund.

Having an emergency fund can help you cope with unexpected situations without using credit cards or going into debt. Having an emergency fund can help you cope for a while if you lose your job. Having an emergency fund can help you pay the deductible on the insurance for major repairs or replacements. Having the insurance in place will limit your losses to whatever deductible you have.

We all know that we should have insurance and have funds set aside for emergencies - now is a good time to check to see that you have the right amounts! Be prepared.

Budget Cutting

My boss here at the Alliance Library System, Kitty Pope, is doing some research on whether libraries are adjusting their budgets or cutting spending in these difficult economic times. If your library has cut, is considering cutting, or will be cutting or adjusting its budget, please help out in this research.

She has set up a short, ten question survey to help her gather data. The survey can be found here.

I'll post more when we have the results tabulated.

Thanks!

The Risk Spectrum

Back to risk. For previous posts on risk, click here.

As I mentioned in previous posts, you can take on lower risk, but also at mainly lower rewards or returns. An newsletter from the Lord Abbett mutual funds broke risk down into various categories. Low risk/reward investments are considered "crawling", investments with a little more risk are considered "walking", and investments with even more risk are considered "running".

Here are some examples:

Crawling

• Tax exempt bond funds that invest in short-to-mid-range maturity municipal debt.
• Short-term corporate bonds.

Walking

• Intermediate-range corporate bonds.
• High-yield corporate debt.
• Convertible securities.

Running

• Equities (stocks).

Within this last category, the risk spectrum can be defined further from lower to higher by looking at large and well-established stocks, then mid cap value stocks, then small cap stocks.

As always, each person's definition of risk will differ, as well as how much risk each person is willing to endure will differ. Seek the help of a financial advisor or professional to learn more.

Setting Your IMRF Employer Rate for FY2010

In General Memo 587, IMRF announced the optional phase-in rate program for the 2010 employer rates. Each employer also received a preliminary rate notice via the Employer Access Document archive.

It is very important that every employer review this preliminary rate notice and share this information with the appropriate staff.

Employers have until August 31, 2009, to select their 2010 contribution rate. If IMRF does not hear from an employer by August 31, 2009, we will assume the employer has chosen the optional phase-in rate.

For all previous posts discussing the different rates that are available to you, click here.

Coping With Budget Shortfalls

This information comes from a LibraryJournal.com article by Susan Carol Curzon from last April, titled "Survivor: The Library Edition - Director-to-director guidance on how to cope with more budget shortfalls"

Tips to remember in these tough times:

1. Never stop outreaching
2. Talk to the users
3. Scan the environment
4. Counter the myths
5. Watch out for space hunters
6. Recognize the different emotions
7. Answer the question
8. Run a tight ship
9. Focus on planning
10. Keep looking at the dollars
11. Level the playing field
12. Ask the tough questions
13. Keep your spirits up

There's no way I could give adequate explanation for each of these in this post, so here's a link to the full article.

Mutual Funds

My last two posts covered the concept of risk and the concept of diversification to mitigate risk while investing. If you are not (or don't want to be) an active investor that needs to watch many different investments in a diversified portfolio, one way you can still achieve some diversification is through investing in mutual funds.

The U.S. Securities and Exchange Commission (SEC) defines a mutual fund as "a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holding."

Mutual funds will each have an investment philosophy, such as large cap stocks, corporate bonds, etc. Beyond that, however, it will diversify within that investment class. So, buying into a mutual fund should get you diversification within that mutual fund's investment class(es). Buying into mutual funds that have different investment philosophies will get you even greater diversification.

However, there are many mutual funds and a lot of different terms and ideas to understand before you invest. Here are two resources to help do the research:

• The SEC's introduction to mutual funds can be found here.
• Motley Fool has a glossary which they tout as "mutual fundese translated for the masses" which can be found here.