The theme of change is everywhere, I hope you will consider how changing times affect your money mindset and decision making.
Transitional times cause people to pay closer attention to their money. Currently, we are seeing economic changes that everyone is aware of such as inflation, increasing interest rates and market downturns. There’s a great deal of talk of recession.
Cortisol rises in changing times and all the “recession talk” exacerbates the collective worry. Stress reactions often result. This can lead to panic driven money moves.
Every financial regret I have and most that I hear about, have been the result of emotional decision making. Changes in personal situations or larger scale shifts in the world at large, trigger a sense of insecurity and a need to rush to financially safe-feeling actions.
In many cases, it’s appropriate to make changes. My point is not to ignore events occuring. The point is to respond in a thoughtful and considered manner vs. an emotionally reactive one.
There are many opportunities to gain in periods of financial ups and downs, and to be aware of the moves that are most beneficial in different times.
Economic cycles will occur and have throughout history. We needn’t wildly ride the waves, just hoping to swim and not sink.
We can plan strategies for our money in any type of circumstance.
Safety nets are helpful in challenging times
1. Having cash reserves available
Cash reserves, emergency savings, whatever you name it (and names that inspire you are actually important) create a valuable safety net. Available cash in reserve means just that. It’s in reserve. Do not treat it as a savings account like others that you may dip into regularly.
Identify the few and only uses that this money should be potentially funding and how much you think you need.
If you can’t save as much as you need, spread it over time and automatically move a certain amount each month to that account, so it becomes habitual, goes relatively unnoticed, and is somewhere with slightly more difficult access.
I would say save a bit more than you think you can handle. The automation makes it easier to forget that extra amount you’re moving over to savings (really).
The magic of auto deposits is that it is happening on its own and you somehow accommodate it more easily than you expect to after a few months.
I use my old Disney Credit Union for this because it’s separate from my other accounts and not an account I go into often. It also earns better interest than most.
2. Having access to credit
Figure out where and how much you have available in credit access. That includes credit cards, lines of credit, overdraft protection lines, personal loans, etc.
Review the total amount you would have in a pinch, and assess whether you feel like that is enough to help you feel more secure in tough times.
Take a close look at the terms and interest rates for each and pre-determine how you would use your credit if you need to. This gives you a plan of action in the event you need to dip in. Again, it’s better to have the ground rules established and the order of usage planned, so you aren’t reacting in the moment in a way that costs you more.
If you like credit card rewards points, try to make a habit of determining what can go on the credit card monthly that can be paid off each month to avoid interest charges. Without knowing your credit card allotment within your budget, you can easily overspend and begin the snowball effect of incurring interest.
3. Negotiating lower or fixed interest rates on loans
When it comes to loans of any kind, don’t be shy about asking for help, whether that is lower interest rates, different terms, or even a settlement if you find yourself in a real bind.
If you have adjustable rates, you may be able to find a fixed rate option (with your mortgage, for example). As we see interest rates climbing, now is a good time to have that discussion with home loan lenders.
There are ways to consolidate multiple loans into one fixed rate loan or a lower interest loan that can be investigated. Asking your lenders for adjustments is not unique, and often they will have ideas or tips or offer tangible assistance.
A little tip – if you call and get someone who is not helpful or seems to not know the answers to your questions, call back and get another support person on the line. Unfortunately, some people are more knowledgeable and more helpful than others and when I don’t get the answers that make sense, I call back and am often shocked by how much help I actually receive from someone else.
4. Awareness of actual spending (budgets)
It is very difficult to plan for anything when you don’t know your numbers. It’s crucial, whether you are a budgeter or not, to know what you need each month to cover your expenses and any savings or other line items that you intend to fund.
This should be the first step (but people turn away when you list this first), so you can understand the amount of reserves or credit you should have to cover a designated number of months you want to have saved.
Know what is absolute, and what is potentially flexible within the budget numbers. If pressed, what could be eliminated? And, on the flip side, if you could, what would you add to the budget?
Awareness and clarity is always the most important step from which to make informed decisions.
5. Additional revenue streams
In times of change, multiple revenue streams can come in pretty handy and it’s best to establish them when not in a transitional and possibly stressful situation.
Much of the point is to establish enough of a solid foundation in your financial life, to allow you to ride the waves of change more comfortably.
You may not like change, but it will all be a far better experience with safety nets in place. If a job is lost and there is an additional revenue stream or two, that will be a welcome fallback or help.
Stress affects people differently, some jump into action as a result, and others become more fearful and freeze or make irrational decisions to calm their nerves. Know yourself and plan for change in a way that will accommodate who you are.
6. Moving money and investments around to lessen the potential risk
You have likely been doing this already with the current volatility in the markets, but you can and should be looking at ways to manage the risk in your investments, with financial professionals.
If you have been putting your discretionary income into crypto or other higher risk/yield investments in the last few years, now is a good time to evaluate and possibly move funds toward some safer investment options.
I say possibly, because your risk tolerance, age, knowledge level, and other factors need to be taken into account when you analyze your alternatives. Rebalancing investments is something that you should consider at regular intervals, in general. When the economic environment is poised for change, look at it again.
Professional help is very important and may present actions that you wouldn’t know. Assistance is readily available in many ways, find one that suits you.
Change is a fact of life, every part of it, and your finances are no exception. Your money can work with you and be your ally in moving through the unknown ups and downs. Do the preliminary work, so that it can. You will be in a better position and able to make smart decisions, not panic decisions when needed.