It has been a year since the stock market hit a high in October 2007. Since then, the financial picture has changed drastically.

Hundred year old investment banks have disappeared. Trillions of dollars of wealth has evaporated. Residential real estate has dropped in value by more than a third in some places as foreclosures have skyrocketed. Some of those who had counted on a lifetime of savings to provide an extra measure of comfort and security in retirement are rethinking their plans.

And the cost of food and fuel has risen sharply. Consumer confidence is down and it would take around eleven months to sell out the housing inventory that is currently on the market.

As each week in the financial crisis unfolds, I’ve been inundated with questions from readers wondering where it’s safe to put their cash, should they wait to buy a home, and what will happen if the government buys all of the bad real estate loans and financial markets don’t get better.

It’s tough to have confidence in a financial crisis. A home typically represents more than half of a family’s financial net worth. When we’re told that its value has evaporated by a third, it’s bad enough. But after the first week of October, third quarter financial statements will begin to arrive. You’ll look the bottom line on your 401(k), Roth IRA, IRA or brokerage accounts and you may get nervous all over again.

It’s difficult to muster confidence in tough financial times. While it’s painful to watch the federal government fumble the ball, it’s worse to experience a broken market first-hand, either by not being able to borrow what you need to grow your business or by calculating your new net worth, and realize that early retirement won’t be quite as early as you hoped.

What can you do to shore up your confidence while strengthening your personal balance sheet?

  • Assess your cash flow.

How much income is coming in? How much is going out? If you’re not in the “black,” that is, if you’re not spending less than you earn, you’ll need to reprioritize some expenses and/or find a way to bring in extra income each month.

  • Pull a copy of your credit history.

In a world that revolves around credit, you have to make sure yours is as good as it can get. Pull a copy of your credit history from Check for errors and then dispute them. Keep in mind that some of your past mistakes may still show up on your credit report. The key is to make sure that those black marks on your credit are reported correctly. If you failed to pay a debt but ended up paying it off later, your report should indicate that the debt was paid in full.

  • Keep your debt as low as possible.

Pay all of your bills on time, and in full, and strive to pay down your credit card debts as quickly a possible. Usually, you’ll want to pay off the card with the highest interest rate first, then the other lower interest debts. Aim to have a balance of less than 25 percent of your maximum available credit limit.

  • Make sure you have an emergency reserve.

Some families don’t have any cash on hand, but are relying on a home equity line of credit (HELOC) if times get tough. The only problem with that strategy is that some banks and lenders are cutting back on credit lines or closing HELOCs altogether. These days, cash is king. Try to have 3 to 6 months of cash on hand in a savings account you can access easily. With recent financial news, some people may decide to keep cash on hand (the proverbial “under a mattress”) rather than in a bank. Since most savings and checking accounts at banks and savings and loans are insured for $100,000 (and possibly more depending on what happens with the current bailout legislation), you should keep the money in an institution rather than risk losing it at home.

  • Put off any unnecessary big purchases.

You may have been planning to buy a new flat screen television or even a new car before the end of the year. If you can make do for another six months, you might be better off not making a large purchase or taking on another significant debt. With lousy holiday sales expected, the after-New Year’s sales should be really good this year. However, if you have to buy now, you may find great deals on cars and some other large purchases, but you need to make sure you understand where your finances will stand once you have completed that purchase.

  • Make yourself indispensible at work.

If your company goes out of business, you’ll likely be out of a job. But if your company is downsizing or laying off some members of the team, you want a fighting chance to keep your job. Becoming indispensible is one way of building in job security.

The hardest thing is to keep your worries in check. By focusing on creating a solid financial footing for yourself and your family, you’ll build confidence and lasting security in tough financial times.

Oct. 3, 2008.