Seven tips to help you with financial planning in times of economic uncertainty
Feeling overwhelmed navigating uncertain times and keeping your financial goals? Economic instability is inevitable and unpredictable, but it does not have to derail your plans.
By following the tips in this article, you can create and execute a financial plan that can help you weather the storm and achieve your financial goals.
Remember, financial planning is not a one-time event, but a continuous process that requires your attention and commitment. The sooner you start, the better off you will be. Happy planning!
Financial planning in times of economic uncertainty
Financial planning is the process of creating a roadmap for your money that aligns with your values, needs, and aspirations. It involves setting clear and realistic financial goals, assessing your current financial situation, developing and implementing a strategy to achieve your goals and monitoring and adjusting your plan as needed. Financial planning can help you:
- Manage your cash flow and budget effectively
- Build an emergency fund to cover unexpected expenses
- Diversify your income and investments to reduce risk and increase returns
- Manage your debt and credit wisely
- Save for retirement and other long-term goals
- Protect your assets and income from unforeseen events
- Minimize your tax liability and maximize your tax benefits
To implement these points in practice and get valuable hands-on experience, check out our Plan Your Year Masterclass. The class will give you essential financial insights and results-based actions to use over the next 12 months to grow your business income.
Seven ways you can protect yourself in times of economic uncertainty
So, let’s delve into tips and tricks for successful financial planning, with seven things you can do to protect yourself in times of economic uncertainty.
1. Prepare before the downturn
The best time to prepare for a financial crisis is before it happens. This means having a clear understanding of your income, expenses, assets, liabilities, and net worth. You should review your financial goals and priorities, and make sure they are realistic and achievable. It is also crucial to have a contingency plan if your income drops, your expenses increase, or your assets lose value.
This could involve creating an emergency fund, paying down high-interest debts, and assessing the flexibility of your income streams.
2) Establish clear financial goals
Having clear and specific financial goals can help you stay focused and motivated in times of uncertainty. Your goals should be SMART:
Whether it’s saving for a home, education, or retirement, having specific, measurable, and time-bound goals provides direction and motivation for your financial plan. For example, instead of saying “I want to save more money”, you can say “I want to save $10,000 for a down payment on a house in three years”. You should also prioritize your goals according to their importance and urgency, and allocate your resources accordingly.
According to Lankitha Wimalarathna, CEO of Hiveage: “Setting clear and defined financial goals is the cornerstone of effective planning. It transforms vague aspirations into actionable targets, fostering a disciplined approach to wealth management. By delineating specific objectives, individuals can navigate their financial journey with purpose and track progress, fostering confidence and informed decision-making along the way.”
3) Create a budget and emergency fund
A budget is a tool that helps you plan and control your income and expenses. It can help you live within your means, save for your goals, and avoid unnecessary debt. To create a budget, you need to:
- List all your sources of income and estimate how much you earn each month
- List all your fixed and variable expenses and estimate how much you spend each month
- Subtract your total expenses from your total income to get your net cash flow
- If your net cash flow is positive, you can use the surplus to save or invest for your goals
- If your net cash flow is negative, you need to find ways to increase your income or reduce your expenses
An emergency fund is a savings account that you can access in case of an unexpected event that disrupts your normal income or expenses, such as a job loss, a medical emergency, a car repair, or a natural disaster. Having an emergency fund can help you avoid using your credit cards or tapping into your retirement savings, which can have long-term consequences. To build an emergency fund, you need to:
- Determine how much money you need to cover your essential expenses for 3 to 6 months
- Set a monthly savings goal and automate your transfers to a separate savings account
- Choose a low-risk and liquid investment option, such as a high-yield savings account, a money market fund, or a short-term certificate of deposit
- Resist the temptation to use your emergency fund for non-emergencies
4) Diversify your income and investments
Diversifying your income and investments can help you reduce your risk and increase your returns during economic uncertainty. Diversifying your income means having multiple sources of income, such as a salary, a side hustle, a rental property, a dividend stock, or a passive income stream. Diversifying your investments means spreading your money across different asset classes, such as stocks, bonds, real estate, commodities, or cryptocurrencies. To diversify your income and investments, you need to:
- Identify your risk tolerance and return expectations
- Choose income and investment options that match your goals and preferences
- Allocate your money according to your desired asset allocation
- Rebalance your portfolio periodically to maintain your target allocation
- Review your performance and adjust your strategy as needed
5) Manage your debt and credit
Debt and credit can be useful tools to help you achieve your financial goals, but they can also be dangerous traps if you misuse them. Debt is money you borrow and have to pay back with interest, such as a mortgage, a car loan, a student loan, or a credit card. Credit is your ability to borrow money based on your credit history, credit score, income, and other factors.
During uncertain times, managing debt becomes crucial. Prioritize paying off high-interest debts and consider renegotiating terms with creditors if necessary. Maintaining a healthy credit score provides flexibility and access to financial resources when needed.
6) Seek professional financial advice
Sometimes, you may need professional financial advice to help you with your financial planning, especially in times of economic uncertainty. A financial advisor is a person who provides financial guidance and services to clients, such as budgeting, investing, retirement planning, tax planning, estate planning, and more.
The graph indicates that the demand for financial advisory services is likely to increase in the future, as more people and businesses seek professional help with their financial goals and challenges.
7) Downsize your lifestyle and prioritize saving
One of the most effective ways to cope with economic uncertainty is to downsize your lifestyle and prioritize saving. Downsizing your lifestyle means living below your means and reducing your spending on non-essential items, such as eating out, entertainment, clothing, travel, and more.
Evaluate non-essential expenses, identify areas for potential savings, and prioritize building a financial safety net. This may require sacrifices in the short term for long-term financial security.
A well-crafted financial plan is your anchor in economic uncertainty
In the face of economic uncertainty, a well-crafted financial plan becomes your anchor. By preparing in advance, establishing clear goals, budgeting wisely, diversifying, managing debt, seeking professional advice, and making strategic lifestyle adjustments, you can navigate through turbulent times with resilience and confidence.
And even though financial planning might feel like a chore, in the long run, it will be worth the effort. Embrace the journey, stay informed, and let sound financial planning be your guide in uncertain times.