Steps You Can Take To Feel Empowered During Uncertain Economic TimesDuring times of economic uncertainty, it's important to take steps to protect your finances. In this article, we'll explore some practical strategies to help you secure your financial future.
1. Top off your emergency fundA job loss or loss of income can come at the most unexpected of times so having emergency savings set aside will serve as a bridge until you regain income stability. The traditional rules-of-thumb suggest having three to six months of living expenses in an emergency fund. This will help you cover essential expenses like: rent/mortgage, utilities, insurances, food, medical costs and transportation. Reasons to favor saving more than 3-6 months' worth of expenses include:
- During recessionary environments and times of high unemployment, it gets harder to find a new job
- If you’re self-employed or have inconsistent income flows, it can be more difficult to predict when steady income might reappear
- Having an emergency fund that can protect you for six months or longer, allows you to be more selective in your next career decision and helps lessen feelings of desperation
2. Consider lower risk investmentsToday, safer investments like high yield savings, money market accounts (MMA) and CDs are paying attractive rates while remaining very liquid. Make sure you know your options rather than leaving the funds in a traditional checking or savings account that will pay you very little in interest. Benefits of investing in these financial products include:
- Money market accounts and high-yield savings are offered by most banks, have similar features to traditional checking and savings accounts and typically pay a much higher yield
- Some come with a debit card and/or check writing feature but may require an account minimum and limit the number of transactions permitted each month
- If your financial institution is federally insured and comes with FDIC protections, your deposits are safe up to the $250,000 threshold should the institution fail
- Capital One (360 Performance Savings, 3.40% APY, No fees, No minimum, FDIC)
- Goldman Sachs (Marcus high-yield savings, 3.75% APY, No fees, No minimum, FDIC)
- PayPal (high-yield savings, 4.00% APY, No fees, No minimum, FDIC)
- Ally Bank (MMA, 4.00% APY, No fees, No minimum, FDIC)
3. Eliminate high interest debtCredit card balances are usually subject to variable interest rates. This means that in a rising rate environment, it’s likely that a card’s APR will go up and so will your payment. If you can pay off your credit card balances, consider doing so. If you can’t, look for debt consolidation opportunities and balance transfer offers with zero or low rate introductory periods and commit to paying off the balance before interest kicks in
- Most important is developing a debt-payoff strategy that you can commit to for as long as you need to pay off your balances
- Eliminating high interest rate credit card debt and making it a priority is one of the best things you can do for your financial future
4. Perform a check up on your budgetUncertain economic times can bring unexpected changes to your income and expenses. A budget check-up can help you identify any areas where you may need to adjust your spending or savings to stay financially stable.
- Prioritize the concept of paying yourself and your future first by making savings mandatory
- Automate your savings just as you would automate your mortgage, rent payment or a utility bill. View your savings and your future as an obligation that you must pay
- Identify unnecessary expenses or habits that you can consider eliminating
ConclusionWith negative headlines and the potential of a recession on the rise, it can be easy to start feeling financially stuck. You can overcome this paralysis by getting proactive about your personal finances in a way that protects you from economic events that are outside of your control. By prioritizing an emergency fund, eliminating bad/unnecessary debt, and dialing in your budget, you dramatically increase your chances of being able to handle anything an economic downturn might throw in your direction.