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As we navigate uncertain economic times, it's important to proactively manage your personal finances. One of the first steps in preparing for a potential recession is to examine your spending. Take a hard look at your budget—where is your money going? Are there areas where you could cut back? While it may not be fun, tightening your belt in certain areas could free up funds to prioritize savings, even as prices continue to rise.
A key piece of financial advice I always give is to ensure that you have a well-funded emergency account. Ideally, this account should have at least three months' worth of living expenses. This emergency fund acts as a financial cushion, providing peace of mind and a safety net in case of job loss or unexpected expenses.
If you're feeling nervous about the volatility of the markets or anticipate needing to access your funds in the near future, consider shifting some of your investments to more liquid assets. Options like online savings accounts or money market funds tend to be less volatile than stocks or bonds, making them a safer place to park your money in uncertain times.
However, even in the face of market fluctuations, don't stop saving for retirement. One of the biggest mistakes people make is trying to time the markets. Remember, markets tend to fluctuate over long periods, but staying the course is crucial. Continue contributing to your retirement accounts, especially if your employer offers a match—this is essentially free money that can significantly boost your savings over time.
Another area of caution is taking on debt. With interest rates remaining high, it's wise to avoid large loans whenever possible. If you can steer clear of new debt and avoid carrying balances on credit cards, you'll save yourself from paying unnecessary interest.
As I shared in a recent Fox Business article discussing how Americans can prepare for a potential recession, the most important thing during economic downturns is to maintain perspective. We've been through financial ups and downs before—most recently during the pandemic—and we came out on the other side. The key is to cut spending where possible, continue saving, and remain patient. These hard times will pass, and staying financially disciplined now will pay off in the long run.
Stay the course, take care of your finances, and remember that smart planning today can set you up for a more secure tomorrow.
Have questions or want personalized financial advice? Our team would love to talk. Request an appointment and we'll be in touch.
About the Author:
David Peters, CPA, CFP, ChFC, CLU, CPCU, CGMA, is the Founder and Owner of Peters Professional Education (petersprofessionaleducation.com) and Peters Tax Preparation & Consulting, PC. David Peters is also registered with the U.S. Securities and Exchange Commission (SEC) as an Investment Advisor Representative (IAR) with Peters Financial LLC. He regularly teaches courses in accounting, finance, insurance, financial planning, and ethics throughout the United States, and regularly contributes regularly to various professional publications, including NCACPA’s Interim Report, SCACPA’s CPA Report, and VSCPA’s Disclosures.
Required Disclosure:
The content presented above is for informational purposes only, is general in nature, and is not intended to and should not be relied upon or construed as a financial plan or financial/investment advice regarding any specific issue or factual circumstance.
Financial and investment advisory services offered through Peters Financial LLC. Brokerage and custodial services offered through Charles Schwab Co. Inc., member FINRA and SIPC. Peters Financial LLC and Charles Schwab Co. Inc. are not affiliated. David Peters also offers tax services through Peters Tax Preparation & Consulting, PC. Peters Tax Preparation & Consulting, PC is not affiliated with Peters Financial LLC and clients or prospective clients are never obligated to use Peters Tax Preparation & Consulting, PC. as part of any financial planning or investment management services offered by Peters Financial LLC.
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