The world’s economy is always fluctuating, and some events are more disastrous than others, resulting in high unemployment rates and businesses closing their doors and causing financial hardship worldwide. It can be tough to balance your finances to address your immediate needs and long-term goals — and during an economic recession, this act can feel even more vexing.
However, through planning, understanding your needs, and ample preparation, there are many ways you can navigate through uncertain times.
Here are five smart financial choices you can make in an unstable economy.
Continue Investing When Possible
If you’re still far from retirement age and have decent emergency funds, don’t stop investing. Review your goals, determine your risk tolerance, rebalance your portfolio if your stocks or bonds have fluctuated for the worse. But then, keep making the same investments you’d usually do. For instance, you still want to open a sign printing business, determine the costs, and if you’re capable of doing it — go for it. After all, during economic recessions, prices tend to be lower, and increasing your investments is highly unlikely to hurt you long-term.
Modify Your Budget and Address Urgent Cash Flow Needs
If you’ve lost a job or experiencing financial hardship due to economic instability, you can still plan for your cash flow needs. You can do this by keeping track of your budget continually, avoiding unnecessary spending, and only focusing on what’s necessary. Doing this can increase your savings or help you cover any immediate household needs.
If you’re having severe financial issues, consult with credit card companies or other debtholders, as some firms offer flexibility for payments on a case-by-case basis. You may also ask to extend deadlines for monthly bills to make it attune with your cash flow.
Have a Contingency Budget
Even if you think you don’t need to make immediate spending cuts, you must know your minimum budget needs should your income change, or you face a sudden change in routine — like an economic recession. Having a contingency budget can help determine what’s essential for you and inform you if your emergency savings are adequate.
Begin by reviewing your current budget to see which expenses are vital for your household and which ones you can remove or reduce. By determining your minimal living cost, you’ll be informed if you face any hardships like losing a job or a reduction in wage.
Set a Savings Goal for Emergencies
The ideal savings goal depends on your income’s stability. If you have an unstable job where your income fluctuates, it’s best to have more savings intact. For this, you’ll need around 5 to 6 months of savings set aside. However, if you’re in a stable job, 3 to 4 months of savings will do. But ultimately, how much you need to save depends on how much risk you’re willing to handle.
Though you must support your immediate needs, it’s still crucial to plan for the future. Don’t stop paying for your retirement plan even if your contributions become smaller and delay withdrawing from this if it isn’t needed to help level off any losses you may have faced during an economic recession.
Additionally, you can tap into your emergency savings when the worst comes, but make sure that your long-term strategy pays back what you used — and builds up your savings again in the future.
Things may seem dire right now, but patience, mindfulness, and the financial strategies mentioned can help you develop healthier money habits — and maintain your finances, ensuring the steady growth of your wealth.