How to Manage Your Money in a Recession

So far it has been anything but smooth sailing with our economic landscape. Planning for retirement can be complex and overwhelming for some, especially during these unpredictable times. Working with a financial professional can help you plan accordingly and stay steadfast so that you can achieve your financial and retirement goals. No matter if you have short or long-term investments, multiple retirement plans, or a significant amount saved in your emergency fund, here are some key points to consider that can help you manage your money in a recession:

Be Prepared Beforehand

One of the best pieces of advice is to make sure that you’re prepared beforehand. When the economy is in a recession, it may be a little harder to make some changes. Ideally, you want to be positioned in a way that’s going to fit your risk tolerance. Having a portfolio that can withstand a pullback will give you a lot more peace of mind and confidence moving forward.

Reexamine Your Budget and Cash Flow

In a recession, you might encounter a setback that impacts your working hours or other sources of income. The important thing is to not feel overly stressed about how your investments are set up. Take this as an opportunity to reexamine your budget and how much you’re allocating to your investments. You want to make sure that you have the cash flow you need to pay your bills.

Make Your Money Work for You

A general rule of thumb is to save for three months’ worth of expenses. This may need to be increased based on job security. Also make sure your savings are making today’s interest rates!  Many banks are still paying less than 1% while others are considerably higher. As groceries and other living expenses continue to go up, the important thing to remember is to make your money work for you, not the other way around.

Watch Out for Higher Interest Rate Credit Cards

Since interest rates have come back up, the cash out refinancing opportunities that were available a few years back are harder to come across. It’s also important to watch out for those higher interest rate credit cards. It may make sense to use some of the money from your emergency fund to pay that off.

Paying Off Your Mortgage

Paying off your mortgage really comes down to interest rates. If you were able to refinance or purchase a home when the interest rates were at a record low, consider holding on to the mortgage. Don’t lose out on an opportunity to invest your money in something that could earn you 5% or more to pay off a mortgage that’s at a 3% interest rate. Leverage your money, keep it liquid, and let it grow for you.

Take Advantage of Investment Opportunities

A recession can be a good time to introduce your cash into the market. Make sure that you’re acting in accordance with a plan that can be measured. You don’t want to make one off moves here and there. This is a good time for you to rebalance your investments and take advantage of any opportunities in the market (stocks, bonds, etc.).

Stay Steadfast with Your Investment Objectives

One of the biggest things that you can do, aside from working with a financial professional, is to not panic. Stay steadfast with your investment objectives and avoid making any short-sided decisions such as moving everything to cash. Be prudent and weather the storm. Those knee jerk reactions are likely going to have an adverse effect down the road.

At Financial Dynamics, we offer a suite of financial and lifestyle management services that can be customized to help you create your retirement plan. Our advisory team is committed to helping you make informed decisions about your money so that you can feel confident about your future.

Advisory services offered through J.W. Cole Advisors, Inc. (“JWCA”). Financial Dynamics & Associates, Inc. and JWCA are unaffiliated entities.