With the current cost of living crisis, rising interest rates, and talks of a looming recession constantly circulating the headlines, the current financial uncertainty can keep anyone up at night. In the USA, inflation is at a 40-year high, with prices excluding food and energy increasing by up to 6.6% compared to a year ago. In comparison, the annual inflation in the European Union has gone into double digits and was 10.9% in September 2022.
But don’t fear – taking some steps can help save yourself when a recession or economic crisis is inevitable. With no clear answer of what to expect and the stock market taking investors on rides with steep drops, there is no better time than now to review your money habits. While no one can predict the outcome, getting ahead and preparing for it now will enable you to stress less about what happens in the economy and protect your finances well into the future.
Get through the next economic downturn with these five steps to win over a financial crisis.
Table of Contents
Think long-term and stick to your investments
When financial instability hits the global market, it can be unsettling, especially if you have already made various investments. However, it is vital to think long-term about your money and assets to build a stable foundation and remember that investing is a long game, best won when sticking it out through various crises. During times of economic downturn, stocks are cheaper to buy, and it is an excellent time for those who want to dabble in investing due to the low risks involved. Investing in small amounts regularly rather than a large lump sum is advisable to reduce your exposure. Beginner investors can look at tools like Finixio AI to make smart and educated investment decisions.
Create a budget
While it is impossible to predict what will happen to the economy in the future, even with global predictions from the brightest economists, it is essential to create a budget that you can stick to to get you through the crisis. If you aren’t keeping a budget, then you don’t know if you are living within your means or overextending yourself every month. It is also essential to know how much money you have coming in and going back out each month to plan how much money you need to put aside for an emergency fund. While a budget won’t be able to change your spending behaviors, it is a valuable tool that allows you to see where your money is going and give you a better overview of your expenses.
Focus on debt repayment
A financial crisis may make you more worried about paying off your outstanding debts, including credit card bills. Credit card debt leaves you with high-interest charges that take up a significant portion of your monthly budget. Focusing on this debt will reduce your monthly financial outgoings and put you in a better position to start saving or building an emergency fund. Tracking your debt accounts and seeing your interest rates has never been easier, as most credit card companies now have apps to make repayments more manageable. Focus on paying the debts with the highest interest rates and get rid of interest-free payments so that you can slowly start putting your money towards more important things.
Look for ways to earn extra money
It’s always a good idea to have more than one income stream, even more so during periods of economic instability. Nowadays, starting a side hustle and earning extra money is easier than ever. Even if you don’t want to set up a side business of your own, everyone has something they can do to boost their finances, from selling old technology and clothes online to getting a second job and babysitting. While the money you earn from these additional sources of income may be significantly less compared to your earnings at your main job, even small amounts can add up and will go a long way to helping you through a financial crisis.
Look at your spending
If you are feeling the pinch, it is worth seeing where you can eliminate expenses outside your necessities, including rent or mortgage payments, food, and utilities. Perhaps you have a gym membership that you don’t use and could be canceled or subscription services that aren’t needed, leaving you with recurring monthly charges. During a financial crisis, you must take a long, hard look at your spending to organize and save money on your monthly outgoings. Review all of your accounts at least once or twice a month so that you don’t miss any due dates, and identify areas of spending that can be cut to keep you going during the cost-of-living crisis.
With the current cost of living crisis, rising interest rates, and talks of a looming recession constantly circulating the headlines, the current financial uncertainty can keep anyone up at night. In the USA, inflation is at a 40-year high, with prices excluding food and energy increasing by up to 6.6% compared to a year ago. In comparison, the annual inflation in the European Union has gone into double digits and was 10.9% in September 2022.