When financial uncertainty strikes—either because of personal job insecurity, losses of income, or local and national events such as economic recessions—many consumers take a cautious approach to managing their money and shift their focus toward playing it safe and keeping their finances afloat until circumstances improve.
Although it is wise to exercise caution in the face of uncertainty, too many people respond to this uncertainty by putting their financial planning on hold. But pausing financial planning doesn’t put you in a better position to come out of uncertain times stronger than you were before.
In fact, financial planning can help you turn uncertainty into an opportunity to actually increase your financial security and take strong steps toward a brighter future. Here are some tips on how to approach the financial planning process in the face of these challenges.
Start by Setting (or Revising) a Budget
If you don’t use a budget to manage your spending, it is time to develop one. A budget divided into spending categories can be a tool to help you manage your money, control spending, and even identify new opportunities to save.
If you already have a budget, consider reviewing your spending limits to identify ways to scale back your spending. Look for opportunities to cut back on unnecessary expenses.
You might also consider scaling back your budget even if you haven’t suffered a loss of income. This proactive approach can pad your financial cushion in case financial uncertainty increases in the future.
Prioritize Your Emergency Fund
If you don’t have a healthy emergency fund in place, now is the time to build it up. Emergency funds are designed to offer additional security in the event of financial emergencies that may develop during periods of economic uncertainty.
Even if you have an emergency fund in place, you may consider building up your finances to give yourself extra padding to withstand unforeseen events. It is common for consumers to increase their cash reserves when they’re anticipating economic recessions, losses of income, or other disruptions to their financial plans.
Polish Up Your Credit Score
One of the frustrations of taking out credit is that, when your score is in great shape, you probably aren’t as dependent on credit to finance certain purchases. But when your financial circumstances change and you need to take out credit to bridge financial gaps, your credit score can drop, making it tougher to qualify for this credit.
Take preventative action by getting your credit score in great shape before you need it. Pay bills on time, reduce your credit card balances, and check your credit report for errors. If you end up needing credit in the future, you’ll start from a stronger position.
Look for Opportunities to “Buy the Dip”
Investors view economic recessions, market corrections, and other market volatility as opportunities to invest in stocks at a better value. If you have money to invest, consider investing in stocks and other assets when uncertainty causes these prices to drop.
Although investing comes with a certain degree of risk, this type of investing strategy can help you maximize long-term returns.
Consider Supplementing Your Income with a Side Gig
Whether you’ve lost income or you’re simply worried about your job security, a side gig can help supplement your income, diversify your income streams, and strengthen your emergency fund and other financial planning initiatives.
By seeking out a side gig before you suffer a loss of income, you can also prioritize savings ahead of any disruption to your finances. When that disruption does take place, you’ll already have money set aside to offset that loss. And if you never do suffer a loss of income, the earnings from your side gig can support other financial goals, such as saving for vacations or even planning for retirement.
Don’t Wait to Seek Out Help
If economic uncertainty has thrown your financial plans into disarray, don’t wait until your finances unravel to seek out help. Consult with a financial planner or other money expert who can review your current outlook and recommend adjustments to your financial planning with the ultimate goal of curbing—or even avoiding altogether—the financial problems you’re worried about.
Discover more tips to improve your money management—download our guide Financial Planning During Uncertain Times.
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