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How to prepare for the fiscal cliff

Posted by Allison Knothe  December 31, 2012 01:04 PM

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Time is running out in Washington for the country to avoid the fiscal cliff. If that happens, 8 or 9 percent budget cuts would hit the majority of the federal government and could throw the country back into a recession.

So what do you do?

We talked with J. Christopher Boyd, a leader in the Financial Planning Association of Massachusetts and the founder and chief investment officer of Asset Management Resources, LLC. He is a contributor to Boston.com’s Managing Your Money blog and the host of a financial radio show on WXTK 95.1

First things first, he said, “Don’t lose your head. It’s most likely that there will be some legislation after the New Year that will discount some of the tax increases.”
But it is unclear how long it will take for that legislation to go into place.

So Boyd advises people to revisit their W-4 document.

“Most people that work are going to have an increase e in payroll tax,” he said. “Make sure you’re not paying too much.”

He said that capital gains rates and dividends will both see increased rates, so “consider where you hold which investments.”

If a deal is not reached and the economy heads back into a recession an estimated 3.4 million people are expected to lose their jobs. With that in mind, it is a good idea to build up your savings, Boyd said.

Lastly, “You’ve got to be attentive to what’s going on,” he said. “It could affect your whole financial plan.”

But even with the fear of another recession, Boyd said that going through your finances around the new year is a good practice to be in the habit of anyways.

“It’s a good time to take a fresh look at what’s coming next year,” he said.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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