Tips for surviving a volatile economy
Manage your money like you’re down to your last dollar
With historically high budget deficits, financial market instability and global competition, economic uncertainty is sure to be with us for some time to come.
A good way to survive a challenging and unpredictable economy is smart money management. Here are some suggestions:
- Reduce your expenses. Start by examining your budget. Look for ways to cut back on unnecessary expenses. Cutting back on luxury items may be easier than you think if you simply redefine what is necessary. Also, it pays to be a bit cautious regarding big expenses, at least until it becomes clear that the economy is on a sustainable growth path. Doing these things will help you weather tough times, as well as position you to capitalize on opportunities as they arise down the road.
- Bring debt down by reducing your balance a little each month. There's a great deal of truth in the saying: It's better to earn interest than pay it. Set debt-reduction goals and, if necessary, make some short-term sacrifices. In the end, you'll find that your standard of living will increase just by paying down your debt load. Most of all, don't add new debt. More and more people are proving that it is possible to live a credit-free existence. They live by a simple philosophy: “If I can't afford to pay cash, I can't afford to buy it.”
- Secure your job by making yourself indispensable. Look for ways to emphasize your unique skills and your value to your employer.
- Don't ignore your bills if you get caught in a financial bind. You'll only accumulate interest fees and jeopardize your credit rating. If necessary, contact your creditors and explain your situation. Most will accept a revised payment plan in some cases with no penalty or additional interest.
- Preserve your future assets. Try to avoid making withdrawals from IRAs and other qualified plans unless absolutely necessary. If you do start cashing in your plan money, you may be penalized for early withdrawals at the expense of your own future financial security. Worst of all, you'll consume retirement dollars you have been accumulating for years and may have a hard time replacing.
- Keep your insurance in-force, including your life, medical, and disability coverage. It's tempting to let your coverage lapse when forced to choose between paying insurance premiums and paying the mortgage. But financial protection is particularly important during difficult economic times.
In sum, the best way to weather an uncertain economy is to protect what you have and reduce your expenses. Keep in mind that downturns are normal, temporary phases of the economic cycle followed historically by ever-increasing prosperity. Just remember that if you maintain financial self-discipline when times are tough, you'll probably be way ahead of the game when the financial climate turns around.