Every few years, we see headlines with cautionary tales about impending economic downturns and the ensuing uncertainties, leaving many gripped with fear and anxiety.
In times like these, it’s understandable for individuals of all financial backgrounds to experience heightened stress and concerns. However, it’s essential to acknowledge that there are proactive measures you can take to improve your financial stability, build financial resilience, and cultivate a greater sense of financial confidence, even when the world around you seems to be falling apart.
While it’s true that you have no control over external economic factors, you are not powerless over certain aspects of your finances. You have the opportunity to shift your focus toward the factors within your control, enabling you to navigate periods of economic uncertainty more effectively. Consider these five actions you can take, regardless of outside influences:
- Assess your current financial situation.
- Create a budget.
- Build an emergency fund.
- Maintain a long-term perspective.
- Practice self-care and manage stress.
When we’re constantly bombarded by bad news, it’s all too easy to adopt the narrative presented by the news as our own reality. As a result, we often slip into a state of fear and anxiety, largely due to a lack of clarity regarding our own financial standing.
5 Ways to Build Financial Confidence
However, as you go through this list, implement the strategies, and better understand your unique situation (rather than what the media tells you), hopefully, you’ll experience reduced stress levels and increased confidence to navigate challenging times.
1. Assess Your Current Financial Situation
How often do we immediately jump to the worst possible outcome when confronted with bad news? While it’s not a bad idea to plan for the worst-case scenario, it doesn’t mean we should surrender to the notion that those circumstances are inevitable.
Instead of leaping to the conclusion that the economic volatility will completely derail our retirement plans, can we pause and consider whether making a few adjustments and cutbacks here and there could help us get through a short period of uncertainty?
This is where the importance of assessing your current financial situation comes in. When we take a moment to truly understand our situation, it’ll help us realize if our fears are unfounded or if our concerns are indeed valid. We have to know where we stand to know what changes we need to make.
Evaluate your income, expenses, debts, and savings. This assessment will give you a clear snapshot of where you stand and help you pinpoint areas for improvement.
2. Create a Budget
The idea of implementing a budget may be met with skepticism by those who view it as restrictive. Many with that viewpoint don’t realize that the opposite often holds true.
A budget provides the freedom to spend on the things that align with your financial goals and priorities without the stress of second-guessing whether you have enough funds.
Diligently tracking your income and expenses ensures that you’re spending within your means, not that you’re depriving yourself of fun and a life worth living. It allows you to make informed decisions and maintain control over your finances, which can be especially important during economic volatility when you need to be more intentional in your spending.
3. Build an Emergency Fund
Building an emergency fund should always be a top priority since financial emergencies can arise during any state of the economy. But having a safety net that covers three to six months’ worth of living expenses is particularly reassuring during seasons of economic uncertainty.
If you don’t have a fully funded emergency fund, don’t wait until the brink of an economic downturn to start building it. Start now.
Your specific circumstances will come into play here, but a three-month emergency fund may be sufficient for dual-income households, while single-income households may feel more comfortable with a six-month fund to provide an additional buffer.
Strengthening your financial safety net provides an extra layer of financial security and peace of mind during uncertain times.
4. Practice Self-Care and Manage Stress
In the face of a constant stream of bad news, it’s no wonder that stress and anxiety levels surge. Unfortunately, many people struggle to cope with such circumstances, leading them to make impulsive financial decisions driven by panic rather than thoughtful consideration.
You should always prioritize your mental and emotional health, but it becomes even more crucial during highly stressful situations like an economic downturn.
Engage in self-care activities like exercising, spending quality time with loved ones, and making time for your hobbies. Not only are these activities good for your overall health, but managing your stress levels will help you approach financial matters with a clear and calm mindset.
5. Maintain a Long-Term Perspective
Remember that economic cycles are a natural part of the financial landscape. Maintain a long-term perspective and avoid making impulsive decisions based on short-term fluctuations.
It’s natural to feel inclined to take action, such as liquidating and cashing out all your accounts, when you see headlines of a declining economy and markets. That’s when it’s critical to remain focused on your goals.
While you may need to make a few adjustments to your financial plan based on the circumstances, it’s important not to let short-term fear and emotions drive long-term decisions.
Take a deep breath and find solace in the fact that people across generations have lived through (and survived!) economic downturns.
Navigating Times of Economic Uncertainty with the Support of the Legacy Planning Team
While there are reputable sources and trusted voices that can help you stay informed and guide your decisions during times of economic uncertainty, it can be challenging to sift through all the opinions and perspectives. The sheer volume of information can become overwhelming, making it difficult to filter out the noise.
Moreover, the one-size-fits-all approach you hear on the news may not be the most effective approach to managing your finances during economic uncertainty. Instead, a second pair of eyes on your unique situation can provide valuable insights and personalized guidance.
This is where we come in. At Legacy Planning, we can assess your financial situation and goals, develop a strategic plan, and prepare you for and guide you through all stages of life.
If you’re ready to improve your financial stability, build resilience, and proactively prepare for uncertain times ahead—we invite you to schedule a conversation today.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
