Drastic ups and downs in the markets and indices spinning like out-of-control tops have left many of us wondering what we should do about our finances. The United States has the highest unemployment rate in decades and an increasing deficit. The world seems to be in a mess and optimism is in short supply. Global affairs are fascinating, but many women are hunkering down and focusing on their own issues.  Until the economy recovers, many of us are in a difficult — even perilous — place.

If youre worried, the most important thing you can do right now is to hone your financial literacy skills. Here are some steps to take that should help you now and in the long run.

Analyze Your Situation

1. Know how much you’re spending. Keep track of your monthly and yearly expenses. If they seem high to you, find areas where you can cut back (daily trips to the coffeeshop, for example). Internet sites such as mint.com have tools that can help you keep track of expenditures and find ways to reduce them.

2. Determine your risk tolerance. Many people rate themselves as conservative or careful investors; however, they often have very risky investments in their portfolios. Sites such as South Carolina State’s publication  can help.
3. Estimate your retirement income needs. You will probably need as much income after you retire, if not more, than you do now, especially if you plan to travel extensively, maintain two homes, or expect to need more for health care expenses.
4. Examine your risk management vehicles. Unless you have few assets or are very affluent, consider Long-Term Care (LTC) insurance. The needs of lower income people may be taken care of by Medicaid (generally, Medicare does not cover long-term care expenses); those who are wealthy can self-insure.

Then Consider Taking These Steps

1. Put a higher percentage of your assets in cash if you are close to retirement.   These monies are in addition to Social Security, pension funds, or any other regular income you receive. You should have a minimum of one years living expenses in cash and cash instruments, such as money market funds, short-term CDs, bank savings accounts, etc. Although low-yielding currently, such accounts are generally stable in value and easily accessible. This cash reserve fund will give you some peace of mind and will prevent your having to sell securities at a low price, as you have ready funds to cover expenses for a while.
2. Don’t sell investments with poor performance. Doing so will lock in losses. Unless you have many years to make up for the decrease in funds, it is not good strategy. To recover a loss of 20 percent you need to make 40 percent on an investment of the same amount of money.
3. Make a current budget. Look for areas in which you can cut expenditures and then invest those savings. If you have sufficient monies in your cash reserve fund, you should consider making additional contributions to your retirement plan/s, if it is permitted. If you are over 50 in 2011, there are makeup provisions that allow you to save even more in some retirement plans. For example, if you are 50+ and have made the maximum contribution to a 401(k) or 403(b) this year, you are allowed to contribute up to $5,500 more. Simple IRA retirement plans allow $2,500 and traditional IRAs $1,000 in additional contributions. If you have several retirement plans, or a combination of two or more, check with your accountant and/or financial planner regarding contribution limits.
4. Invest the cash portion of your portfolio (10 percent or more) in an FDIC-guaranteed bank money market fund. The return will be very close to that of an uninsured mutual fund money market.
5. Protect your principal. For money that you might need in three to five years, consider an FDIC-insured CD or other low-risk, structured product.
6. Annuities are a good investment for providing a lifetime stream of income. Consider investing up to 40 percent of your portfolio in variable annuities. Many have features that lock in a guaranteed 5 or 6 percent growth annually, no matter what the markets do. For the balance of your portfolio, invest in a traditional mix of stocks and bonds with no more than 60 percent in stocks.
7. Delay retirement i f you can. You’ll have more years to contribute to retirement plans and build on your portfolio, and fewer years during which you will need your savings.

Women have a number of disadvantages in planning and saving for retirement, including lower salaries on which to base contributions, a less straightforward hiring history, caregiver requirements, and longer lives. However, we can overcome some of these drawbacks through informed and careful financial management. One of the best gifts we can make to ourselves is financial literacy. Understanding financial matters is essential to our well-being, now and in older age.

Jacqueline Darien has been a financial planner for 16 years and received her Certified Financial Planner® designation in 2000. Previously, she was a fundraising consultant and worked on planned giving strategies. She blogs at Rebootyourretirementincomeplan.com.