5 Ways to Prepare for Economic Bad News
There are certain truths or realities in the FinancialVerse. Here are some of them:
What goes up may not go up forever – like the stock market. Such key financial indicators have cycles and variations. They go up and down. There is volatility. Our stock market has gone up for over ten years.
Economic cycles happen. We have growth cycles and recessions.
Businesses change. New technologies disrupt long-standing businesses – think newspapers, print magazines and, for you oldies, eight track tape players.
Life happens. You have an unplanned car accident, an illness or house repair.
Jobs change. You may have several years of your job going very well until you get a new boss or a new business strategy is introduced by your company.
Given the events of the last few weeks with China trade issues, stock market volatility, tariffs, Brexit, and interest rates plummeting, it is time to get your financial house in order in case more bad news happens and directly impacts you.
Here are five suggestions to help you prepare for economic changes:
Increase Your Savings It is time to more carefully assess your cash flow and look to put more money away into your emergency fund and savings account. For motivation, think of how your financial world would be impacted if your hours were cut back, you didn’t get the raise you were expecting or, in the worst case, you lose your job. Having an emergency fund of at least 6 months of living expenses will soften the blow if any of these unexpected events take place.
Track Your Spending As we have discussed extensively in the FinancialVerse book and blog, you need to have a budget that allows you to be aware of what you are spending and why. In anticipation of bad times, you should know what spending you could cut back (e.g., dining out or regular show tickets). Remember, you can’t manage something if you don’t measure it. If you haven’t developed a budget, the time is right to begin the process. The FinancialVerse book has practical suggestions for how to approach this.
Update Your Resume For most everyone, their single biggest asset is their ability to earn cash income with the education, skills and experience they have. It is always a good idea to make sure your resume is up-to-date in case you need to begin a search for a new job. Being prepared matters. Losing your job may have nothing to do with your job performance but may be directly related to an economic event or new technology that no one saw coming.
Pay Down Your Bills It is always important to have control over your regular monthly bills and debts. As we have discussed in another blog post – Debt Can Be Your Friend – if it is used correctly. On the other hand, if you let your spending and bills get out of hand you can really find yourself in a bad place if the economy changes and your income is reduced. The key thought here is to make sure you have paid down or off as much of your debt as possible in case things change. The additional benefit of doing this is that will also likely see improvement in your credit scores.
Have a Downsize Plan It is always a good idea to have a plan on how you can downsize your financial life in case a major negative financial event takes place. Such a plan should include having basic insurance coverage in place, agreeing with your spouse or partner on what financial changes you can make in your lifestyle, and having part of your emergency fund set aside for the costs of moving or prolonged unemployment in your geographic area.
Our economy has been growing for over 10 years, the stock market has seen fantastic returns and interest rates are nearing historic lows. It is always best to prepare for the worst when times are good. Take some time to prepare yourself for the economic bad news. It will be coming; we just don’t know when.