Bank failures! High inflation! Increasing interest rates! If you read the news, you’d think we’re in a financial crisis. But don’t panic! First, while there does seem to be a lot of bad economic news, we are not in a financial crisis or a recession. There are some steps you can take now to make sure your finances are in order if things go bad.
💡 Fun Facts…
| 1) The US has faced 13 recessions since WW2 |
| 2) During the Great Depression, the unemployment rate reached 25% |
| 3) The Great Depression lasted until 1941 (WW2) |
First, make sure you are on top of your financial situation by updating your budget and personal balance sheet. Your budget keeps track of your income and expenses, and indicates whether or not you’re spending more than you’re taking in. Your balance sheet will show how much assets you have compared to your debts. You should have more assets than debts; if not, look for ways to reduce your debts.
Cut your expenses where you can, especially if you have more expenses than income. Eliminate unnecessary things that you “want” vs. things you “need”. Areas like entertainment, eating out, subscriptions, clothing and others are prime categories to cut back on. You can also negotiate with your service providers to get more favorable payment terms or better rates. Similarly, look for ways to build your income with side jobs or selling items that you don’t use anymore. There are plenty of online sites where you can sell your used items, such as Ebay and Facebook Marketplace.
Prioritize the debts you are paying. Pay off the higher interest loans or credit cards first and definitely make the minimum payments on all loans, or you might get hit with higher interest rates. Talk to your debtors and you may be able to negotiate lower interest rates in some cases.
Make sure you have an emergency fund in case of a serious change or emergency, such as loss of a job or medical problem. You should have 3-6 months of living expenses in your fund. Start building one as soon as you can – set aside some money each month. If you do lose a job, make sure to take care of yourself by eating, exercising and getting enough sleep. File for unemployment and take advantage of this source of income while you are out of work. Start looking for a new job…you might even find something better! Don’t sit around and feel sorry for yourself. Network with friends, colleagues and former co-workers, both online and in person. The best way to get a job in today’s workforce is by networking. Also, you can brush up on your skills to make yourself more marketable.
You can also get advice from professionals like a financial planner. They can give advice on how to strengthen your financial positions. There are even non-profit organizations that offer low-cost or free advice, such as the Financial Planning Association. Plan ahead by increasing your savings, diversifying your investments and lowering your debt.
Don’t ever panic…stay calm and try not to get stressed. The more you focus, the better you can help yourself. Keep in mind that any kind of financial crisis is temporary and if you take the right steps now, you can survive.
OPINION
If the financial system starts breaking down, or we move into a recession, don’t freak out! With proper planning, you can be prepared. Do NOT sell off all your investments and put them in cash. Remember, most investing should be long term, and in the long term, most investments rise. So it’s ok if there’s a temporary drop in value knowing that they will eventually recover. Maintain the important principles of diversification and understand your risk tolerance. All economic downturns eventually recover, so be patient.
