How can you protect your finances in an uncertain economy?

After a very difficult year, and after learning how important it is to be ready to face economic uncertainty, taking precautions to protect your money and your family has become a priority for almost everyone. How can you protect your finances in an uncertain economy?

Reading the financial news, it seems the economy is starting to recover and the fear of a recession is in the past. Preparing for the worst, however, may give you peace of mind now, and avoid trouble later on. What tips should follow to protect your finances in an uncertain economy?

If you are a parent, your child's financial future is surely one of your main worries

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If you have survived a difficult year and don’t want to feel you are unprepared for any other economic turbulence there can be, here are some steps you can take:

Strengthen your emergency fund

Financial experts recommend everyone build an emergency fund that could cover six months to a year's worth of expenses. This can get you through a period of unemployment till you find your next job or if the pandemic has decreased your income.

So, while you still have a job, start an automatic transfer to your savings account with every paycheck, and look for other ways to cut down costs and put that money towards your fund.

Try to pay your credit card debt

Now is a great moment to get aggressive with your payoff plan, if you have credit card debt. Carrying debt into an economic crisis could bring major financial trouble if you lose your job or have a lower income during that time.

Go to the doctor

The cost of health care can be prohibitively expensive, even for Americans with health insurance. This is why it's a good idea to schedule a checkup with your doctor and get a checkup while you have employer-sponsored coverage in place, or good insurance you can pay

Getting regular checkups may head off any potential health (and financial) problems.

If you're close to retirement, make sure you have cash

The only caveat to leaving your investments alone is if you're on the verge of retirement. If you're still entirely invested for the long term, you may find yourself retiring, but unable to access your retirement income because it has taken a recessionary hit.

If, in the next few years, you'll need to live off the money that's currently invested, then make sure you transfer some of your investments into cash equivalents. These will remain stable and available for you even if a recession hits just as you're ending your career.

Maintain your regular investments

It can seem counterintuitive, but even during a recession, you probably don’t want to stop your regular contributions to your investment accounts, whether that’s your 401(k), Individual Retirement Account (IRA), or a taxable brokerage account.

While it can be stressful to put money into a downward-trending market, it allows long-term investors to benefit from what are essentially sale prices on investments.

You may think you could game the system by taking your money out of the market at its high and then reinvesting it when it hits its bottom. But timing the market is notoriously hard to do and can drastically damage your earnings if you miss days when the market makes large gains.

 

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