Economic uncertainty is by its very nature unpredictable. It can occur at any time for almost any reason and without any warning. But, with the right strategies, planning, and preparedness, you can protect yourself and stay financially resilient in spite of uncertainty.
Here are eight key steps you can take starting today to safeguard your finances for the unexpected.
1. Create a Budget
It sounds basic and simple, but a good budget is the bedrock of being financially prepared. With a budget, it will be significantly easier to track your spending and focus on essentials. If you’re trying to improve your budget and allocate more money for emergencies, cutting back on unnecessary expenses and building your savings will be much easier when you have a budget to review.
2. Build Your Emergency Fund
The old adage to save 3–6 months’ worth of living expenses was good, practical advice until the pandemic proved even then it might not be enough. Now, we recommend having 6 months’ worth of expenses as the minimum with up to a year for the worst-case scenarios. It’s important these funds be in a liquid, accessible account since you never know when you might need it. Start small but contribute consistently to boost your emergency fund.
3. Reduce Your Debts
In the face of an emergency, paying bills will likely be the last thing on your mind, which is why it’s vital to pay down as much high-interest debt as you can before the unexpected occurs. Always be on the lookout for opportunities to consolidate or refinance for a lower interest rate. And avoid taking on new loans unless absolutely necessary to keep as much of your cash flow free as possible.
4. Review Your Insurances
Medical, unemployment, and disaster costs are some of the most expensive imaginable, and for that reason insurance is nonnegotiable. (Sometimes literally for homes, vehicles, and certain lines of work.) But just “having insurance” might not be good enough. It’s important you review your policies to ensure you have adequate health, life, and disability income insurance to protect against those major expenses for you and your loved ones. Don’t be afraid to shop policies for more than the minimum.
5. Boost Your Skills
Wait, isn’t this a financial preparedness list, not a hiring or résumé boosting list? Believe it or not, having more professional skills is another way to be better prepared in the event of downsizing, layoffs, or any other events that might disrupt your income. So be sure to invest in continuing education or professional certifications to enhance your job security and possibly explore new opportunities in the future.
6. Diversify Your Income
Not everyone has or needs a side-hustle, but having multiple sources of income is never a bad idea. Whether it’s part-time work in your off time or your own artistic and creative endeavor, explore side hustles and freelance opportunities to reduce reliance on a single source of income. Who knows, you may even unlock a new passion or connect with a new community while you’re at it.
7. Invest Wisely
Passive income is the dream, and the fastest way to make it a reality is through investing. The problem most individual or amateur investors have is they approach the market like a lottery or casino and just want to find that one millionaire-maker-stock before it takes off. The best way to invest is wisely with a diverse portfolio of stocks, bonds, and securities. ETFs (Exchange-Traded Funds, a form of investment fund) are the casual investor’s best bet and traditionally what 401(k)s and investment IRAs go towards. No matter how you invest, avoid reacting impulsively to market fluctuations and investment news, and always consult a professional.
8. Have a Backup Plan
No one knows the future, and the best laid plans of mice and men often go awry, so even with all of these strategies and tips a backup plan is a must. The best, most reliable backup plan is to think ahead about steps you’d take in a financial emergency, such as downsizing or applying for assistance. Look for ways to build non-liquid equity you can rely on for a rainy day.
The sooner you start implementing any (but ideally all) of these strategies, the better positioned you’ll be to face uncertainty. By taking these proactive steps, you can build a strong financial foundation and confidently navigate what life has in store. So, start today and secure your tomorrow!