5 ways to be resilient during economic uncertainty

Ups and downs are a normal part of the economic cycle. But it can still be concerning when the economy slows or when stock prices drop.

Things like the stock market’s health and even your job security may be beyond your control. But there are ways to protect your finances, even during times of economic uncertainty.

During times of economic uncertainty, overall spending might drop, unemployment could climb, and stock prices can go up and down. While experts can’t always predict when these things might happen or how severe the changes might be, they do generally agree that temporary fluctuations will happen. That’s why it’s so important to be ready for them. 

Here are five ways you can strengthen your finances in order to be resilient during times of economic uncertainty.

Even the smallest expenses can add up fast. And cutting expenses can help you regain control of your own finances even during an economic downturn.

You could take a look at your budget and lifestyle and consider different ways to cut expenses. For example, common household expenses could be taking up a major portion of your budget. Programming your thermostat and improving your home’s energy efficiency can cut costs and save you money on household expenses. And meal planning, making your own basic pantry staples and buying in bulk are ways to reduce food costs.

After examining your budget and cutting back on expenses, you may be able to use that money for important necessities instead—like saving for an emergency fund.

Even in the best of times, it can make sense to have a little extra money put aside for emergencies. And that’s especially true when the economy isn’t doing so well.

An emergency fund can provide a financial buffer when an unexpected cost pops up. It can also help you avoid tapping into long-term savings like a retirement or college fund. And emergency funds aren’t just for people who can set aside lots of extra cash each month. Even saving just a little bit every week or month can help.

To start building your own emergency fund, the Consumer Financial Protection Bureau recommends setting up a separate savings account. Then make it a habit to contribute regularly. Start small if you need to, and consider setting a schedule for your contributions. You can even set aside some of your income by automatically transferring your chosen amount into the savings account each payday.

Extras like tax refunds and cash gifts provide a great opportunity to kick-start an emergency fund or give it a big boost without dipping into your wallet or affecting your day-to-day budget.

Not only can debt be overwhelming and stressful, but it can strain your budget too. That’s why minimizing your debt can be so important.

There are lots of different strategies you can use to pay off debt. With the “snowball” method, for example, you focus on paying down your smallest debt first. Then you can move on to the next smallest debt, essentially creating a “snowball” of payments as you pay off each debt.

The “avalanche” method is another way you can minimize debt. With this method, you pay off the debt with the highest interest rate first. Then you pay off the debt with the next highest interest rate. And that can help you save more money in the long run since the highest interest rates cost you the most. 

Credit card balance transfers and debt consolidation loans are other options you could consider too. Always do your research to understand the short- and long-term impact of transfers and consolidations. Know upfront how much you’ll pay in fees and interest, whether the interest rate is fixed or variable, and whether you’ll have a balloon payment due down the road.

No matter which strategy you choose, keeping up with your minimum payments can help you minimize debt. And that’s because making minimum payments can help you avoid penalties or fees when you’re unable to pay your balances in full.

Diversifying your investment portfolio means investing your money in a variety of stocks, bonds, mutual funds and other investment products. Diversification can help you reduce risk—both during an economic downturn and when the market is volatile. If one investment loses money, your other investments could help make up for the loss.

As the U.S. Securities and Exchange Commission explains, “Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that if you do, it won’t be as much as if you weren’t diversified.” 

Downturns and periods of market volatility are a normal part of the economic cycle, and the market should rebound eventually. And that means you could regain your losses over time.

Planning for a financial emergency may help ease your mind when the economy is unpredictable. And it helps to have a plan in case the unexpected brings additional expenses or a loss of income. 

For example, it might be helpful to consider what you would do if you lost your job. You could proactively figure out which supplemental income or benefits you may qualify for—like severance, unemployment or health insurance coverage. You can also take an honest look at your finances and come up with a plan—whether that’s taking on a side hustle, reevaluating your spending habits or asking a relative for help.

Planning for the worst-case scenario can help you come up with your Plan B.

For more tips to get you through times of economic uncertainty, you could consider meeting with a qualified financial advisor. They can help you make informed financial decisions so you can plan for the long haul.