How to Handle Your Own Financial Crisis

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I'll admit it: The cynic in me rolled her eyes upon hearing that John McCain wanted to postpone his first debate with Barack Obama because he felt he had to rush to Washington to deal with the financial crisis on Wall Street. I began imagining the phrase taking on a life of its own, used by people who might want to put something off. For example: "Sorry, I can't take out the garbage now -- I have to rush to Washington." Or, "I'm afraid I can't have that report ready by Friday -- I have to rush to Washington."

But you know, there's something useful about that phrase, that concept. It could even help us in our financial lives, if we did some of it, ourselves. Let me explain.

What it means
We can view the phrase rather positively -- like this: If there's something around you, in your life, that needs immediate attention, you can "rush to Washington" -- by dropping what you're doing and what you've planned to do, and by tending to the important matter.

Makes sense, no? Here are some emergencies I can think of:

• Credit card debt. Are you pressed by it, owing perhaps tens of thousands of dollars? If so, you're not alone. (Let us help you dig yourself out.) You have no business investing, though, if you're burdened with credit card debt. You need to stop what you're doing and rush to Washington! Develop a getting-out-of-debt plan. Cut up some of your cards. Start paying as much as you can each month on your highest-interest rate debt first. Spend less, save more. It can be done -- really! (Here's proof.)
• Not having an emergency fund. I hope you have three to six months' worth of living expenses socked away, or otherwise quickly available to you. Because you never know when a calamity might strike, and you don't want to have to live off your credit card. Make sure your short-term savings are in place before you tend to your long-term savings and investing. Rush to Washington to take care of this!
• Investing in companies you don't understand. If you're invested in Transocean (NYSE: RIG), do you really understand the offshore contract drilling industry and Transocean's place and future in it? If you're invested in Genentech (NYSE: DNA), do you feel comfortable with its biotechnology product pipeline? If the answers are no, it's time to rush to Washington! Leave these inclinations behind and start looking into industries and companies you understand and would enjoy following. I've invested in firms I don't understand myself, and have been stung when they've suddenly gone south. These days I find myself much more comfortable with companies I understand better, such as PepsiCo (NYSE: PEP), McDonald's (NYSE: MCD, and even eBay (Nasdaq: EBAY).
• Another error is simply steering clear of stocks. I suspect that many more people will soon be doing that, having been burned by the recent stock market crash. But we all need to remember that crashes do happen now and then, and the market has always recovered from them. It does stink to see your gains evaporate, but they'll likely be back. And in the mean time, stocks are on sale! So if you're living in bond-land and have many years before you retire, rush to Washington! Start moving some money into stocks, perhaps via an index fund.
• Finally, are you leaving lots of money in mutual funds without knowing how good those funds are? I implore you to rush to Washington! And then go to Morningstar.com, where you can look up all kinds of details on your funds. Make sure they have good market-beating track records (otherwise, you're better off with an index fund). Make sure they have reasonable fees, and ideally, no loads. Favor funds with low turnover and mangers you respect. There are lots of solid managed funds out there. The Fairholme (FAIRX) fund, for example, sports a market-whomping five-year average annual return of 8% and top holdings that recently included Pfizer (NYSE: PFE) and Sears (Nasdaq: SHLD).

So instead of scoffing at what could become a joke of a phrase, let's consider putting it to use in our lives. When we find ourselves aware of a possible crisis in our lives, let's put some things on hold and rush to Washington!