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Now for today’s post. Here’s five tips for managing your money during the downturn, from the National Endowment for Financial Education.

1.      Don’t borrow money to continue your current lifestyle. If your income has dropped or you think it is about to, now is the time to rewrite your budget. Income doesn’t match expenditures? Then it’s time to make some cuts and adjust.

2.      Avoid pulling out funds or taking a loan from your 401(k). Even more important, you should continue making contributions into it. If you have to cut back, at least continue to save the amount (or percentage) matched by your employer. Remember, that’s “free” money. If you’re nervous about the ups and downs of the stock market, consider changing your allocation strategy, but stay diversified.

3.      Even if you’re tempted by low interest rates, avoid borrowing against your home equity to fund current expenses. The last thing you need right now is more debt. Another reason to avoid this type of lending is that your home could potentially devalue as a result of the soft housing market.

4.      When the going gets tough, the tough turn to retail therapy and that is not a good philosophy in uncertain economic times. This would be an excellent time to re-evaluate your spending habits and avoid activities that cost money to make you feel better. Before shopping, make a list of only items you need and stick to it. Also, delay purchase decisions on anything other than routine items in your budget for at least 48 hours to be certain you need them. And remember, a diligent shopper is a smart shopper. Be sure to look for alternatives that are low or no cost.

5.      Avoid turning to credit for unexpected expenses while you have savings in the bank. Credit card rates are in the double digits, while interest on savings is in the low single digits. Why would you want to “give away” 15 percent or more of your spendable income to credit card interest? If you have not already done so, now is the ideal time to start to build an emergency savings. You never know when you’ll need it. Hindsight is 20/20, and many Americans wish they had done that.

In Atlanta, business at pawnshops is through the roof. In my hometown and others, violence is spiking in poor neighborhoods.

For the last two weeks I’ve been writing about how people are being affected by the ups and downs of the stock market, mostly focusing on 401(k)s and other investments. But the real impact of a recession is felt by real people, in real ways that go way beyond what they’re worth on paper. And from the looks of some of the stories I’m reading, more and more people are getting desperate. It’s not a good look.

I’ve even seen stories of the ridiculous, like the man doing jail time because he couldn’t afford to keep his lawn green.

Are you seeing signs of desperation in your community, or are people dealing with the downturn well?

Three presidential debates and none of the candidates are talking about what I think should be one of the next administration’s top education priorities: financial literacy.

Look at what’s happened to the economy: credit and equities markets have tanked in great part because many people borrowed to live beyond their means. And with the economy in trouble, now a lot of people are poised to make huge mistakes by pulling out of their 401(k)s or “putting their money under a mattress” where inflation would render it worth little to nothing as the years go on.

In San Diego, the schools have realized that learning how to handle your money is as important as knowing how to read and now require students to take a financial literacy course to graduate.

Isn’t it about time the rest of the country caught up?

Yesterday, I wrote that an important rule of investing is that those who get hurt the worst are those who pull out of long-term investments at the bottom. Think of it like jumping off a fast moving roller coaster right before it climbs its steepest hill: not only will you get hurt, but you’ll miss the best part of the ride.Then, there was a HUGE rally on Wall Street and the Dow Jones closed up more than 900 points — the biggest percentage gain in 75 years, according to the New York Times.

This proves my point. If you jumped off the roller coaster last week and got out of your 401(k) last week, you essentially took four hit: 1) You paid an early withdrawal fee if you’re a young investor; 2) you paid a big tax penalty; 3) you lost principle by pulling out while the market was down and 4) worst of all, you missed the biggest moneymaking day on Wall Street in almost a century.

Need I say more?

I got a lot of questions about the financial crisis over the weekend and the main theme seemed to be that people are scared, mainly about their 401(k) accounts. That’s understandable: 401(k)s are usually the first and sometimes the only introduction people get to the stock market. If that’s your only investment, you’re probably scared. So I’ll answer some of those questions below:

“Descants” asked: Wednesday I receive my 403b statement and it shows where I loss money. I have not received my 401k statement as of yet, but I have already set myself up for a loss on that also. Yes, I am worried, but not enough to make any withdrawals. My question is when will this financial disaster subside?

No one knows how long the crisis will last. Things will turn around when credit loosens up and investors and consumers start to feel confident again. As far as whether you’ll be able to make your withdrawals, that depends on your age. If you’re in your 20s, 30s or even 40s, don’t worry because you’ve got at least a decade to recoup your losses. Remember that withdrawing from a 401(k) or 403(b) early will lead to a big tax hit and a penalty for early withdrawal. That’s not a good look. The best thing to do is consider your age, then consult a professional to look at your asset allocation to make sure that if you’re nearing retirement, you have your money in safer investments like bonds or money market accounts where the risk of principle loss is lower than in stocks or mutual funds.

“SLMB” asked: I am having a huge fit right now. My 401k account have too much money, about $15K. I am going to spend the weekend seeing if I can transfer the remaining money from stocks & bonds into a money market to stop the lost…. My questions, if 401k accounts are losing the money, will the money “return” when the market returns?

Yes. That’s how the market works: the value of your investments can change from day to day, but over time the trend is generally upward. Say you own 100 shares of company and today it closes at $50. That investment is worth $5000. If it drops to $40 tomorrow, it’s worth $4,000. But two days from now, if it climbs to $60 a share, it’s worth $6,000.  So the bottom line is yes, the money comes back when the market does, but only if you don’t pull out before that can happen. Another rule to remember about the stock market is that those who get hurt the worst are those who pull out of long-term investments at the bottom. Think of it like jumping off a fast moving roller coaster right before it climbs its steepest hill: not only will you get hurt, but you’ll miss the best part of the ride.

Again, SLMB, I don’t know your age, but if you’re in your 20s or 30s, time is on your side. Moving money around might seem like a good idea for now, but there’s a good chance it could cost you a lot of money over the long term.

I’ll answer more questions tomorrow. Keep ‘em coming. Remember to leave your email when you post a question so I can let you know when I’ll answer it, and if you like, you can email me directly.

Are you scared yet?

The Dow Jones index lost another almost 700 points yesterday. People I know all over the place are asking me whether they should pull out of their 401(k) accounts. Unemployment continues to go up and nothing the government does — including the tens of billions of dollars they keep giving to companies every day — is making anything better.

The advice I’ve given my friends is pretty much the same that you’ll hear anywhere else: don’t panic. Sit tight, re-evaluate where your money is going and start saving as much as you can. Cut back on those plans to spend for Christmas and put away as much cash as you need.

In the meantime, I’m going to dedicate next week to answering questions about the economy. Anything you don’t understand about the causes of the meltdown, whether or not we’re in a recession, if your bank will fail or if your 401(k) retirement account is in danger. That means don’t be shy: send me your questions, either via the comments page here, via email or on my Facebook group (just search for Keith Reed’s Money Corner).

Have a good weekend, and try to relax.

It’s really getting serious: last weekend a woman in Ohio tried to commit suicide after her house was foreclosed on. This week a man killed himself and his entire family after being out of work so long he just couldn’t take it.

Anybody ready to admit to a recession yet?

These two tragedies were isolated incidents, but they do show the level of financial and emotional strain people get under when money gets tight. Desperation is clearly a powerful thing. Just keep one thing in mind: no matter what happens, money, a house, a job — they’re all things that can be replaced. Life is more precious.

A question I got from a reader:

“Is it better to start using a smaller credit union? I’m currently with Bank of America. I’ve stayed away from them because I like the security of big names. Clearly the big names aren’t so secure anymore.”  -NJ

Well, NJ, I don’t see any reason at this point for you to switch banks based on anything that’s happened in the past week. There have been bank failures, but that has nothing to do with the size of the bank, it has to do with the investment and lending choices certain banks made. Specifically, some banks chose to bet their money on risky mortgages to uncredit-worthy people or businesses and they lost big. When they couldn’t recoup they money they bet, they tried selling the assets (their loans) to raise cash but couldn’t find any buyers. That’s when either they sell themselves (Wachovia) or the government takes over (WaMu).

Bank of America is in a totally different position because as an institution, it never played heavily in risky markets like subprime mortgages. It should be fine, and in fact, it bought Merrill Lynch, another major investment bank that was in trouble because of bad investments.

My last thought is that even in the event of bank failures, as long as the money you have with a bank is less than $100,000 and is kept in a depository account (checking or savings), you have nothing to worry about because that money is insured by the Federal Deposit Insurance Corp., or FDIC. So unless you have some other reason to switch banks, you’re probably fine where you are.

Is anyone else out there nervous about how safe their money is in the bank?

Would you pay for a concert by two people you wouldn’t normally care to see if it meant helping a cause you supported?

Billy Joel and Bruce Springsteen are doing a fundraiser concert in New York for Barack Obama’s campaign this month. My guess is there aren’t too many people on BET.com lining up to buy tickets for that one. But if you support Obama, would you kick out the cost of a ticket?

Other celebrities like Oprah and John Legend who support Obama, but I don’t know if John Legend is touring right now and if Oprah’s doing fundraisers I know I couldn’t afford the plate.

And does it matter to you whether celebrities support a candidate or not? Who could get you to donate to a candidate if you weren’t already planning on doing so?

Trying to understand how big this financial crisis really is?

Think about this: yesterday, investors lost $1.2 trillion on Wall Street. $1.2 TRILLION! If you think that doesn’t affect you, find the courage to look at your 401(k) statement today. It’s down, right? Some of your money was in that $1.2 trillion.

By comparison, the bailout Congress shot down would have cost taxpayers $700 billion, so in theory, Washington could have saved us all $500 billion.  But don’t start cheerleading for a bailout just yet: one investment adviser told me that even if Wall Street gets every dime  in taxpayer money that it wants, we could still end up in a very deep recession.

The country has lost more than half a million jobs this year already and another 100,000 are expected to be announced later this week.

If you were the president, how would you fix the economy? And if you had the $700 billion that Wall Street is asking for, what would you do with it?