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Suze Orman's Dos and Don'ts during government turmoil

Congress' shenanigans to shut down the government for 16 days this month has many Americans rightfully concerned about their personal finances."If you don't want to be affected by the actions—or lack of actions—in Washington, you and you alone are going to have to save yourself," insists Suze Orman.

Although a temporary deal has been reached to end the shutdown, the country's financial state is still up in the air until at least February, when a decision must be made about America's debt ceiling. In the meantime, Orman offers these Dos and Don'ts to protect your finances.

By CNBC's Sakina Spruell. Follow her @SakinaCNBC.
Posted 28 Oct. 2013

Don't freak and take your retirement contributions out of the market.

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If you are in good quality stocks or mutual funds, don't panic. "If you have time on your side and you don't need this money for at least 10 years, then continue to contribute to your retirement account. Just keep adding to it month in and month out," Orman insists.

If you are still frightful that the markets may crash because of what's going on in Washington, Orman recommends you look to history for guidance. "Remember 2008, if you had just stayed the course," she laments. "Within five years or so the market came back big time, more than it had gone down," she says.

During the recession of 2008 the Dow Jones Industrial Average fell more than 50 percent from roughly 14,000 to below 7,000. Today, the Dow is trading above 15,000.

Do get out of bond funds.

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"Who wants to invest in Treasurys now that you have a risk of not getting your money back?" asks Orman.

U.S. Treasury bonds have been considered safe investments because they are backed by the credit of the U.S. government. However,now that Washington is in flux over paying its bills, there is increased risk associated with Treasurys.

Making matters worse, on the news of a weak jobs report, Treasury yields hit a three-month low in October. "They are going to have to increase interest rates in order to entice people to invest in Treasurys; because of that I want you to get out of bond funds. I don't care if you invest in individual bonds, but not bond funds," Orman says.

Bond funds are mutual funds made up of individual bonds.Unlike individual bonds, bond funds do not have a maturity date. So when interest rates rise, the value of your bond funds fall and your principal is not safe.

Do pay off variable interest rate loans.

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"If interest rates go up, so does the rate on your home equity line of credit (HELOC)," explains Orman. Therefore she advises that anyone with a variable rate mortgage make it a goal to pay it down or refinance into a fixed-rate mortgage while interest rates are still low.

Likewise, she advises that current mortgage shoppers avoid adjustable rate mortgages and only seek a 15-year or 30-year fixed rate.

Don’t borrow from a traditional 401(k).

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"Your 401(k) is funded with pretax money. If you take out a loan you are going to have to pay it back with after-tax money," says Orman, noting that you will have to pay taxes again when you withdraw it at retirement time. "I don't want you to have double taxation," she says. A borrower will also have to pay an early-withdrawal penalty to borrow from the account before retirement age.

Do borrow from a Roth 401(k) or take contributions from a Roth IRA if you need to.

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Orman says: "If you can't make ends meet and need to bail yourself out, and the only money you have is in a Roth IRA or a Roth 401(k) account, then you can take a loan from your Roth 401(k) or withdraw contributions from a Roth IRA." Why? "You have funded the Roth 401(k) with after-tax money, so when you pay it back, you are paying it back with after-tax money--not so bad."

Also, in a Roth IRA, "you can take out any money that you originally put in without taxes or penalty, regardless of your age or how long it's been in there," she says. Remember, money in retirement accounts are protected from bankruptcy (with a cap of $1,245,475 on IRAs and Roth IRAs), so Orman stresses "only use it in dire emergencies and never use it to catch up on late payments."

Do stash cash.

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"If you are furloughed or work for someone who may be affected by the government shutdown … you need cash," says Orman. "Just stop spending and start saving." Orman maintains that everyone needs an eight-month emergency fund for times just like this. It is advised to keep your emergency fund in a liquid account where you can access it quickly.

Orman recommends credit unions or bank savings accounts as the safest places to keep these funds. "You need to know money is available to you whenever you need it," she says.

Don't keep spending like you are.

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"If you get in a situation where you do lose your job or are not able to work anymore, you are not to continue to live your life as if you are going to get a job next week or even three months from now," Orman says.

Orman advises that you cut back your spending to cover just your essentials in case you have to stretch the funds in your eight-month emergency fund to 10 or 12 months.

Do use credit cards to buy essentials.

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"That's what credit cards are for… emergencies," says Orman. Her advice to those who would be most affected by another government shutdown is this: "If you find yourself furloughed again, put your essentials like food and gas on a credit card and pay it off when you get your back pay."

Don't let fear rule your moves.

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"You can be afraid of what they are doing in Washington but don't be afraid to be your own boss when it comes to your money," says Orman reiterating that fear is one of the main internal obstacles to wealth.

During this time of turmoil in Washington, Orman says, stay solid with your financial goals. "Follow these dos and don'ts and we will get through this just fine," she says.

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