There has been dire economic news lately, and some people might be worried. They may be wondering how they can protect their personal finances from a bleak economic forecast.

First, keep what you hear in perspective, says Suzanne Badenhop, University of Kentucky Cooperative Extension specialist for financial management.

“If you hear on the news that the Dow Jones Industrial average went down 400 points today, keep in mind that’s a weighted average of 30 stocks that represent the industrial economy,” she said. “That doesn’t mean every stock went down that day. And certainly, if the stocks have gone down, you know they’ll bounce back a little bit because people realize the price is low and will start buying them.”

Badenhop advises not to run out and sell your stocks because of a story on the evening news. Investing is a long-term venture.

“Since they began keeping records around 1920, the stock market has done nothing but go up,” she said. “It does experience some bumps, but events such as the Great Depression, World War II, the Korean War, Vietnam, 9/11 caused a dip for a short time, but then the market went back up. The proven history of investing is that you continue to earn.”

Some might be wondering how the Bear Stearns’ brush with bankruptcy will affect their investments. Bear Stearns is an investment bank and unlike a savings bank, it is not chartered to do business with individuals. Instead, an investment bank’s clients are companies. Among other things, they issue stocks and other types of securities to help businesses raise capital. Unless an individual owns stock in Bear Stearns, they should feel no impact, Badenhop said.

“People shouldn’t squirm, because they need to understand what they own,” she said, referring to the typical investor’s portfolio. “Just because one entity goes down, it doesn’t mean they’re all going down.”

The key to successful investing is twofold: diversification and long-term, Badenhop said.

“If you don’t have time to watch on a daily basis, then invest in mutual funds. Someone else is watching the investment conditions and issues. The mutual fund manager has a goal to do well to keep your money increasing in value. Investing is a long-term venture,” she said.

For those who have money tied up in homes, the housing market is of particular interest lately. There has been a rash of foreclosures due to the high number of adjustable rate subprime loans that were made. People who previously might not have been able to afford a home, suddenly found themselves in a position to buy one. However, once the interest rates adjusted upward, many of them found they were no longer able to meet their monthly payments.

If you find yourself in such a position, Badenhop recommends shopping around for a new mortgage with a fixed interest rate. Due to the U.S. Federal Reserve dropping the prime rate recently, Badenhop thinks people could find some bargains on interest rates.

But if refinancing isn’t an option, and you lose your house due to foreclosure, it’s not the end of the road. It will take seven years to improve your credit rating, but with careful money management, it can improve. In the meantime, Badenhop recommends finding affordable housing and building up your savings to get enough for a down payment.

“Every family should plan their finances so that they have an emergency fund, typically six months of your income,” she said.

This may sound unreachable to some people, but she advises taking one step at a time. The first step to saving is to reduce your debt to income ratio. Revolving credit card debt should be less than 20 percent of take home pay.

Some debt problems are the result of bad decisions. Some are due to uncontrollable circumstances. Badenhop says, whatever the reason, consumers are drowning in debt. They need to look at paying off debt as a way of saving money.

“That’s hard for some people to understand,” she said, “but when you’re not paying interest to somebody, that’s money that’s not going out of your pocket. That’s money you can either save and invest or use to meet your current living expenses.”

And cut back where you can. Keep a financial diary. Writing down every expenditure helps to illustrate how much money flies out the window on nonessential purchases.

Badenhop also recommends that families in extreme financial difficulty work with creditors to reduce their monthly payment schedules. If they receive a request in writing, companies are often willing to set a reduced payment schedule, while freezing the account and the accrual of additional interest.

There are other ways to reduce expenditures – changing phone plans, changing deductibles on automobile insurance or converting a whole life insurance policy to term life are just a few ideas. Examining all aspects of your life will yield others.

Having a family financial plan can be a learning experience for everyone, Badenhop says, and in the long run, it will result in having more money and less stress.