The world has changed in a lot of ways over the past year, with inflation, rising interest rates, and a possible recession on the way. It’s hard to know how this will exactly impact you and your finances, but we are here with steps you can take right now to feel prepared for an uncertain future.
Optimizing your spending habits may be the most crucial factor in preparing for an uncertain future. You should evaluate all of your expenses, from entertainment and dining out to shopping. Start by cutting back on non-essential spending—the little luxuries you allow yourself to indulge in every once in a while.
If you have subscriptions or memberships that you aren’t using, downgrade or cut them off entirely. If you buy new clothes regularly or eat out often, consider taking measures that will reduce those costs—for example, make an effort to purchase classic styles of clothing as opposed to trendy looks so you don’t feel the need to go shopping as often. Also, cook at home more instead of eating out frequently.
Here are some additional ways to trim expenses: use coupons more often; cut down on entertainment costs; shop at thrift stores—there are plenty of ways to save money without sacrificing too much quality of life. All this extra cash can then go directly toward savings accounts or investments (like bonds), which will provide further protection against economic uncertainty down the line.
Build your emergency fund.
If you have any savings at all, it should be in an emergency fund. Your emergency fund is the place where you keep money that’s earmarked for financial emergencies: a car repair, medical bills, or even job loss. If you don’t already have one, now is the time to start building one.
How much should your emergency fund be? Experts recommend having enough saved up to cover six months’ worth of living expenses — whether that’s rent, groceries and utilities (if they’re not included in your rent), or something else entirely. That’s because most people who lose their jobs are out of work for about four months before finding new ones — and if something happens during those four months like a health issue or family crisis, having cash on hand will make it easier to manage without going further into debt.
The best way to build up an emergency fund is by putting aside a portion of each paycheck as soon as possible after receiving it — even if it’s just $20 per paycheck!
Know your credit score and improve it if needed.
Knowing your credit score is critical to protecting yourself against the financial consequences of a natural or man-made disaster. If you don’t know your current score, find out now. It’s easy to get a free copy of your credit report from each of the big three credit bureaus (Equifax, Experian and TransUnion) at annualcreditreport.com, which should be done at least once a year anyway.
Your credit score will also let you know if there are any errors in it that need correcting before applying for new loans or other financial products like home insurance or auto insurance. You can also improve this number by paying all bills on time and keeping balances low on credit cards and other revolving lines of credit (like department store cards).
Pay off high-interest credit card debt first.
When it comes to debt, the higher the interest rate, the more expensive it is to borrow money. For example, if you’re paying 20% in annual interest on a credit card balance of $10,000, that translates into $2,000 per year or $166 per month in interest. If you have several different cards with different APRs that are all relatively high (15% or higher), you should prioritize paying off those debts first because they will cost more than others to carry over long periods of time.
If your goal is to reduce overall interest costs and avoid draining your savings account each month to make multiple payments—then consolidating all of your high-interest credit card balances into one personal loan could be helpful. In this case, we’d recommend choosing an option with lower monthly payments so that you’re able to make timely payments and keep ahead of it.
As a general rule, you should consider consolidating your credit card debt if:
- You want to consolidate your credit card debt into one loan that has lower monthly payments.
- You’re confident in making timely payments on the new loan.
- You’re looking to avoid penalties, interest rates and fees associated with your current credit cards.
Avoid more debt by taking a hiatus from credit cards.
You can use credit cards in the right way. The key is to pay your balance in full each month, never carry a balance and never use more than 10% of your available credit. If you do this, then it’s possible to get rewards like cash back or airline miles that could save you money on everyday purchases.
The problem with carrying a high balance on a credit card is that it will become difficult for you to pay off if something unexpected happens—for example, an unexpected car repair or illness. If this happens while you are making only minimum payments on other debts, you might find that there may not be enough money left over for food and rent.
When faced with an uncertain future, avoid taking on more debt by taking a break from relying on credit cards until things stabilize again.
Find ways to bring in more money outside of your main income source.
You should also consider bringing in more money through a side hustle. If you have a marketable skill, or are able to do things that others cannot, you can use it to make money. Examples include writing and editing content, graphic design, creating apps or websites, selling handmade crafts on Etsy, or starting an online business with Shopify or similar platforms.
If you don’t have any skills but would like to get more involved in the gig economy (which is becoming increasingly popular), then look into freelance work as well. A great way to do this is by registering at Upwork and being active on their platform for about a month before applying for jobs regularly. You’ll see what jobs are in demand and be able to research strong profiles. As you’ll be competing against thousands of other freelancers who will be bidding on the same jobs as you; make sure that your profile stands out from the crowd!
You can also look into other ways of making money, such as selling your old or items you no longer need on eBay, Craigslist, Nextdoor, or Facebook Marketplace. If you have something that’s in good condition and worth more than $50 then there’s a chance someone will buy it from you.
Create a plan for retirement savings, even if that means starting small.
A basic retirement savings plan is a good first step towards securing a stronger financial future down the line. If your employer offers one, open an IRA or 401(k) account and contribute regularly. If not, consider opening an individual retirement account (IRA) on your own. Whether you have access to employer-sponsored plans or not, it’s important to have a strategy in place so that you’re building up funds for your golden years when they arrive—even if it means starting small.
The amount you should be saving depends on several things but ideally should be at least 10% of your annual income if possible—and sometimes more than that if you want to really feel secure about your financial health post-retirement!
Plan for the worst, hope for the best.
In a world of uncertainty, it’s important to plan for the worst. When you’re managing your money, rather than thinking about the best-case scenario, consider what would happen if everything went wrong.
Planning for the worst can help you prepare for anything that comes your way—even if it’s not what you expect. Make sure to keep an open mind and be prepared for any outcome; this will allow you to make changes along the way as needed.
The best way to prepare for the worst is to create a plan. Your financial plan should be designed with contingencies for everything from illness or injury to job loss or natural disasters. By having a backup plan in place, you can take control of your finances and make sure that your family is taken care of no matter what happens.
It’s important to take the time to write down your plan and review it at least once a year. Your financial plan should include your goals, financial situation, assumptions and contingencies. You can make adjustments later on as needed in order to stay on track with your finances.
Although it can be difficult to imagine what the future will hold, it’s important to keep an open mind. It may be that your financial plan needs updating or that you need a new one altogether. The best way to prepare for uncertain times is by planning ahead, having a solid financial foundation, and being prepared for anything that might happen in the future.