5 ways to prove your money is stagnant right now, according to the CFP

or not


Recession

What happens is not within your control – so obsessing over macroeconomic trends or trying to predict what will happen next for the United States or the global economy is not a great use of your time or energy.

This doesn’t mean you shouldn’t do it Care about these things. But if you want to protect your money from a recession, you need to focus on what you can influence directly. When it comes to your money, the most immediate thing you can control is your cash flow.

1. Manage your spending wisely, starting now

Cash flow is money in and money out. The “exit” part is probably the easiest and quickest thing to influence.

Try building a worst-case scenario budget Before You find yourself in the worst case scenario. Take a look at your current expenses, and see what you can cut right away. This will likely be things like entertainment, restaurants, luxury purchases, and other shopping.

Then go a level deeper: what might you not be able to delete completely, but could easily spend less on? This could be groceries, household supplies, or things like transportation or fitness (if you switch from driving to cycling, for example, or swap your exclusive and expensive gym membership for a cheaper option).

This loosened budget can be the first thing to use if you feel nervous about a recession. And remember, recessions are usually officially announced after, after They started (or even a year after they happened, as was the case with the two-month recession in March and April of 2020… Recession declared until July 2021!).

Given that, it’s worth testing out your worst-case scenario spending plan before you have to do so. If you spend less now, it also saves you more cash flow To direct towards savings and investments Another great way to get rid of personal financial stagnation.

2. Increase your earnings, then your savings, while you can

Assessing your spending to understand what you can drop or pause on your budget is a critical step in managing your cash flow. But don’t forget that you can exercise some control over the money side of things, too.

There are several ways in which you can increase your income. The right path for you will depend on your situation, skills, and interests, but here are some suggestions to consider:

  • Request extra shifts or extra working hours
  • Find part-time jobs that you can take on in addition to your existing commitments
  • Explore freelancing or advice on the side
  • Take on more responsibilities or projects at work, and use that as leverage to help negotiate a higher pay (or consider taking your skills elsewhere while companies are still hiring)
  • Start your own business – But remove some of the risk by a) not borrowing money to do it, b) keeping your current job during your startup, or c) both!

And whether you increase your income or decrease your spending (or both), you will have additional cash flow available each month. You can use this extra money to:

  • Put together your own emergency fund, especially if you are concerned about the economic recession and the possibility of losing your job
  • Increase contributions to your retirement accounts to build long-term financial stability
  • Add to your investment portfolio outside of retirement; For example, you can open and fund a brokerage account (or increase the amount you invest each month if you already have a portfolio outside of your retirement savings)

3. Keep investing

Dollar cost averaging is a great strategy for long-term investors To be used when contributing money to the market. When you put the average cost in dollars, you put the same amount of money on a regular, predictable schedule no matter what.

To protect your money (and investment portfolio) from a recession, you need to keep investing despite the market downturn. In fact, especially When the market falls!

You’re not actually the dollar cost average when you stop your contributions every time you feel uncertain about the economic future. Instead, you fall victim to one of the biggest mistakes investors can make: buying at a high price.

If you only invest when the market is up, times are good, and everyone feels confident, you are buying at increasingly higher prices. And if you don’t continue investing when the market is down, you will never benefit from the low prices that the market is offering.

It can be intimidating to push your hard-earned money into the stock market when your investment goes down in value, but wise long-term investors know that corrections, bear markets, and recessions are actually opportunities to buy assets at low prices.

4. Review your skills and update them as needed

Most people fear recessions because they increase the risk of losing your job and therefore your much-needed income. You can help protect your money from a recession by making sure that you remain a vital resource even in a tight job market.

Review your skills and knowledge and compare that with the current market to see where you can meet a need, or to understand what you might need to catch up with to stay relevant with open positions.

This also applies if you are self-employed. Do you need to learn about the latest trends in your field? Are there any training or education opportunities available, some clients or projects you can take on now to expand your experience?

Like everything else on this list, it’s time to take action here — before the economy cools dramatically and companies back off hiring new employees. If you can increase your value now, it will help you hold your current position while companies weather the storm of a potential recession.

5. Avoid reckless (or expensive!) financial decisions.

Now is not the time to make crazy leaps into the unknown with your money or to Assuming unnecessary and uncalculated risks.

This is especially true of any financial decision that will tie a lot of your cash flow, and reduce your


Liquidity

or set a very high fixed cost in your budget.

If you can put off making very big financial decisions that might put you in a precarious position, delay them. In the meantime, You can work to increase your savings And increase your assets through investment contributions.

This allows you to be in a stronger financial position in the future, regardless of what the economy does or does not do in the near term. It may also help make it easier to navigate through economically tough times by leaving you and your budget more adaptable and flexible.

In the end, one of the best ways to protect your money from a recession is to keep perspective. Don’t make a short-term decision on what should be a long-term game – and remember that downturns themselves are short-lived.

It’s hard to go through right now, but it doesn’t last forever. Economic trends tend to be cyclical, so lean times follow periods of growth.

Whether we’re in a recession in the near future or not, focusing on the big picture and being proactive are two key ways to safely navigate whatever comes our way.