How to Protect Yourself During Uncertain Economic Times

Headlines and talks of a possible recession mixed with rising prices of everyday goods have many people rightfully worried. While many other factors determine whether or not an economic slump is on the horizon, it’s normal to feel uncertain about your financial future.

For now, it’s not a bad idea to check in with your current financial habits so you’re not caught off guard if you need to navigate an unfamiliar economic landscape.

Here are some smart financial actions you can take now to better prepare your finances for an uncertain tomorrow.

Build an Emergency Fund

Starting an emergency fund to cover unexpected financial situations can seem intimidating at first but may be simpler than you think. It’s recommended that individuals save enough to cover six to 12 months of living expenses in the event of a job loss or medical emergency. Your emergency nest egg should be kept in an account that is easily accessible and offers a high-interest rate so the more money in your account, the more interest you’ll earn.

To start contributing to an emergency savings account, look at your finances and determine how much you can realistically contribute to your emergency fund. Set up automatic transfers or have your paycheck direct deposit that amount of money into your emergency savings account. Don’t stress yourself out trying to save thousands of dollars. Try to break your goal into manageable amounts.

If you’re already contributing to an emergency fund, you could benefit from increasing the amount you’re adding to it.

You should also consider other savings tools to help your money work for you. Credit unions and banks offer Certificate accounts or CDs that can lock your money away for a determined period of time and allow it to earn interest at a higher rate than a savings account. This way your money is earning dividends on its own and you’re not tempted to dip into the growing funds. AFFCU’s Certificate Accounts insured by the NCUA, require no maintenance fees and can be opened with as little as $1,000.

Reduce Debt

High-interest debt is tough to manage, especially during a recession. It’s important to take steps now to reduce the amount of credit card debt and other high-interest debt you carry.

Avoid making late payments, delaying/skipping loan payments, or maxing out available credit balances. This will help you avoid spending your money on fees. If you’re able to, try paying more towards your debt each month than your minimum monthly payment to pay off your debt faster and lessen how much you pay in interest.

Consider consolidating your debt to one account with a lower interest rate to help you pay down your debt with manageable payment amounts to improve your financial situation. Refinancing mortgages and auto loans are another great way to get a lower interest rate and monthly payment to make your debt payments manageable.

Make a Budget

Creating a budget can help you determine what you’re spending your money on each month, identify areas of improvement and visualize funds that can be set aside to prepare for the future and pay off debt.

Start by tallying up your household income. Next outline your expenses, such as housing, utilities, transportation, loan payments, and groceries. From here you’ll want to subtract the amount of money leaving your accounts each month from the money brought in. Now you can see how much money you’re left with each month.

Then you should break down your expenses into “needs” and “wants” categories to find areas you’re currently spending money on that could be trimmed. You’ll want to specifically focus on the “wants” category for this part, such as entertainment and personal care.

Take a look at your needs category too, you may see a trend in high grocery, utility and gas bills that could be trimmed by changing your actions each day. Like couponing, turning off electronics when the home is empty, or finding ways to reduce running water.

Your budget will allow you to have an overview of your finances that will keep you from overspending. Before you spend any money, assess your budget to make sure you can afford a purchase.

If you already created a budget, you’ll benefit from regular reviews and making adjustments. Each month is different and you may not be accounting for extra income like a holiday bonus or expenses from the holidays.

Examine Your Investments

An economic downturn can make you concerned about your investment portfolio. It’s important to talk to a trusted financial advisor before making an immediate decision about your investments under pressure. Your financial advisor can help you diversify your portfolio to minimize the risk of loss and can recommend some “recession-proof” companies that it may be beneficial to invest in. The Investment Center at AFFCU can help you create or build a comprehensive wealth management plan that fits your needs.

Nobody can accurately predict what economic events will unfold in the future. No matter the circumstances, taking proactive steps to prepare and protect yourself is an easy way to set yourself up for financial success no matter what the future holds.