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Surviving your own 'fiscal cliff'

| Sunday, Jan. 6, 2013, 9:03 p.m.

The year begins with a walk to the edge of the “fiscal cliff” and a nauseating look below.

Have you dared look over the edge of your own cliff, or has the fear of falling kept you from contemplating the possibility of another recession, job losses, tax increases and likely cuts in your Social Security and Medicare at some distant date?

No need to fear. Rather, walk to the edge, look down and then picture your own safety net ready to stop the fall. Install one now to save yourself from the ongoing risks you and your family undoubtedly will keep facing during the next few years.

The recent federal debate about tax increases and government spending cuts has just begun. Regardless of what happens in the near term, the nation will be trying to whittle away at its gigantic debt for years. That means your taxes are likely to rise at some point, and when you arrive at retirement you will need more of your own savings to survive because the government will pull back.

Here's how to erect your safety net now, before tax increases kick in months or years down the road:

• Keep an emergency stash. Does your employer depend on the government as a customer, or will your employer face pressure to attract customers if taxes increase and people cut back on spending? That could lead to new layoffs, so have at least six months of savings in case you lose your job.

• Rummage for cash. Americans have been living more frugally the past few years, but even the most frugal can find savings if they go through credit card bills and checking accounts and list items they've been buying that they don't truly need or want. Many waste money on duplicative Internet and phone services, have more cable access than they truly need or may have life insurance that can be whittled back after children leave the home. With home values rising somewhat, it may be possible to refinance your home and get monthly payments down.

• Cozy up to a budget. Many people consider budgeting a pain, but those who live within a 50-30-20 budget eventually have peace of mind because they no longer feel out of control when bills arrive. For necessities, spend only 50 percent of the pay you have left after paying taxes. Necessities are mortgage/rent, insurance, food, utilities and so on. Thirty percent goes to wants, like vacations and gifts, and 20 percent goes into savings. In other words, savings are not what's left over.

• Save for retirement. Young workers who don't want to be stuck in a La-Z-Boy without cable at 70 are going to have to take saving more seriously than previous generations. According to the Employee Benefit Research Institute, 44 percent of baby boomers and Generation X households are at risk of being short on retirement money if they retire at 65.

What to do? Start saving on your very first job, ideally 10 percent of pay. But if you can't, start smaller and every three months consider increasing the amount by a percent. Devote half of every raise to a 401(k) or IRA. Remember, a person saving just $25 a week in a Standard & Poor's 500 index fund on their first job could end up with close to $1 million. But a person waiting until their 40s would have to invest almost $300 a week to get to the same point.

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