How to Stay Resilient During Economic Uncertainty
How do you deal with economic problems? And how do you deal with financial uncertainty? These two questions are related but there’s a significant difference: while there’s not much you can do to change macroeconomic conditions, you do have the power to respond to them strategically and pragmatically as an individual. Ultimately, your financial situation is something that you can control, even if the market is out of your hands.
What’s Causing Economic Uncertainty?
High inflation has prompted policymakers to raise interest rates, historically leading to recessions. That’s why so many people are nervous about the whims of the market.
Economists define a recession as a period of economic decline that lasts for two consecutive quarters, during which consumer spending tends to decrease, unemployment rises, and stock prices may also take a hit.
How Do You Plan For Periods Of Uncertainty?
How do you prepare for economic uncertainty? First, remember that economic activity always entails ups and downs, even in the best times. Second, bear in mind that economic recovery almost always follows economic recessions. That’s when the headwinds finally die down, and the stock market rebounds to peak performance.
That’s why your main objective should be to weather the storm. Once you make it through to the other side, you’ll be well-positioned to rebuild any savings you had to draw on during the recession.
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Here are five strategies to help you navigate the rough waters of economic uncertainty so you stay resilient:
1. Reduce Discretionary Spending
Once you take a moment to track how you’re actually spending money, you might be surprised at how quickly your many small expenses can culminate in enormous costs. Through this process, you’ll notice plenty of opportunities to cut back on everyday expenditures, which is one of the best habits you can teach yourself ahead of an economic downturn.
You can hone your budgeting skills simultaneously—and try out techniques such as the 50/30/20 method—to account for every dollar you dispense with.
2. Don’t Shy Away From Investing
To some people, investing during economic uncertainty seems contradictory—shouldn’t you only invest when you can be sure of profit? The truth is, the only certainty in the stock market is that it’s cyclical, and upticks will follow downturns. Just hold on to your stocks during the downturn, and you’ll be okay. You can regain any lost value when the market stabilizes, and you might even profit by investing in cheaper stocks during the recession.
Be mindful of these two factors:
- Steer clear of risky investments during a recession, as financial risk increases in times of economic uncertainty
- Diversify your investment portfolio to further reduce risk and make it less likely that all your assets lose money
3. Find Additional Income Streams
Just as you diversify your investments, diversify your sources of revenue. Economic uncertainty can lead to job insecurity, so finding ways to profit from your hobbies, skills, or professional experience can provide some stability in turbulent times.
4. Shore Up Your Emergency Fund
When you’re budgeting your money more effectively and bringing in additional income, you’re in a perfect position to contribute to your emergency fund. What is an emergency fund? Ideally, it’s a high-interest savings account where you can store enough cash to see you through a period of unemployment, an unexpected expense, or a personal crisis.
One of the perks of a high-yield savings account is that your fund is readily accessible when needed. But remember:
- Resist the urge to use it until absolutely necessary
- Add money to it every time you receive a paycheck
5. Pay Down Any Credit Card Debt
If policymakers raise interest rates to fight inflation, you can bet the interest rates on your credit cards have increased, too. That’s why it’s so important to pay off any outstanding balances. And as a rule, keep debt at bay by paying more than the minimum whenever you owe money.