5 Ways to Prepare Yourself for an Economic Downturn
Recent stock market volatility mainly due to the Coronavirus has caused a lot of uncertainty, however, there are things you can do to stay focused on your goals and not let the negative news affect you. Below are list the 5 things you can do to prepare yourself for an economic downturn.
Build Your Emergency Savings
The best time to plant a tree was 20 years ago. The second best time is today. Having an emergency savings, ideally between 3 to 6 months of expenses can help you power through things like sudden unemployment, or unpaid sick leave. It’s important to have different “buckets” of money, short-term for emergencies, intermediate, and long term. This way you can keep your emergency savings in a safe savings vehicle, and you can take more risk with money for longer term goals.
Diversify Your Portfolio
Don’t have all of your eggs in one basket. It’s important to have a mix of securities in your investment accounts so that not everything goes up or down at the same time. This is particularly important when you load up your 401k with your company’s stock. A high concentration in your company’s stock can pay off, but it is also very risky. Be sure to speak to a financial planner to strategize on how to best optimize your portfolio.
Be Careful of Lifestyle Inflation
Nature fills a vacuum they say. Sometimes we find ways to spend new money. From raises, to bonuses and tax refunds, it is easy to find something new to spend it on. It’s ok to treat yourself from time to time, but be sure to also save for a rainy day. Perhaps you can increase your retirement plan contribution or fund a Roth IRA, or increase the amount of your emergency savings.
Beware of the Headlines
Bad news sells. Article headlines are designed to grab your attention. Don’t let the “sky is falling”, “doom and gloom” headlines get you down. A lot of the things that happen in the world don’t impact you directly, but the way they are presented can give you a not so pretty picture of the world. It might be a good idea to tune out sometimes, see #5 below.
Take Care of Yourself
You need to recharge your batteries in order to be at your best. Perhaps go on a social media cleanse and unplug for a bit. Read a book, go out for a walk, go out to dinner with your significant other when it’s safe to do so. Try a new at home workout, call a friend or family member that you have not spoken with in a while. It’s important to take care of your physical, emotional and mental health, especially during times of uncertainty so that you can operate at your best.
Have a Question?
Send me an email at Luis@onmywaytowealth.com and let’s get started on pursuing your financial goals together. To get bi-monthly financial tips for Gen Xers sign up for my newsletter and subscribe to the podcast.
Investment Advisor Representative of Retirement Wealth Advisors Inc. (RWA), 89 Ionia NW, Suite 600, Grand Rapids, MI 49503 (800) 903-2562. Investment Advisory Services are offered through RWA. Build a Better Financial Future and RWA are not affiliated.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal, medical, or tax advice. You are encouraged to consult your tax advisor, doctor, or attorney.