R is for Rethink Your Money Habits During an Economic Downturn

R is for Rethink Your Money Habits During an Economic Downturn

Whether it has affected you or not, the pandemic has brought on a bit of a recession for the United States economy this year. And while the markets appear to be more hopeful than previous recessions, it is still important to be cautious and avoid money mistakes that can be common during a recession. Your money habits can make or break you in a time like this.

Of course, there is a myriad of money mistakes to make, and some may apply to you, and some may not. Either way, it is essential to think about some of these avoidable mistakes as you refinance your life to fit the current economic downturn.

Misusing your emergency fund.

There are many ways this can happen, but these are a few common ones to avoid. The first is not touching your emergency savings at all. You worked hard to save these and may not necessarily need to drain your account, and it can be tempting to hold onto every last penny. But instead, you should look at it as rewarding yourself for saving when times were good. It is important not to forego certain essential things to protect your savings, like doctor appointments and house repairs.

Second, if you are lucky enough not to need to use your emergency fund right now, the worst thing you could do is to ignore it largely.  Meaning maybe you’ve stopped saving for a rainy day because you have to use more of your income right now. Or it could mean that now might be a good time to look into investing some of it or transferring to an IRA. You shouldn’t sleep on an opportunity to grow your investments, even if the timing seems less than subpar.

And third, it should go without saying but, do not spend all your savings, especially if you are doing OK.  It may seem tempting to buy a new car with no interest or cash in on a cheap flight to the Grand Canyon. But if you are only doing so because you have this “extra money” right now, remember you should be prepared for six months into the future and may regret your decision.

You are NOT checking your investments.

Just because there is a recession and the markets are a bit volatile doesn’t mean you should stop checking your investments. Yes, watching your money drop can be scary. But it is better to know what is going on, rather than ignoring it for a little bit of peace of mind. Talk with your financial advisor and make sure your investments are diversified.  By having a diversified stock portfolio, you can avoid a total loss. 

Not preparing for the future.

It is easy to go into survival mode when things are tough. And for the most part, it’s not a bad idea to be more cautious than usual, even if your financial situation hasn’t changed that much. But to stop thinking and preparing for the future altogether can be detrimental. Don’t forget to keep saving and contributing to your retirement account. Even if it’s a little bit less than before, every cent helps. 

And if things become challenging, it can be easy to latch onto the first job that gives you a paycheck. But not getting a job in your field may be detrimental to your career and your financial future. While you may need to take a hit now, it is vital to keep looking for something you are qualified for and enjoy because even if things are tough now, it won’t last forever. Especially if you are young, it is important to invest in learning new skills and knowledge in your preferred field.

Everyone’s recession experience is different, but the bottom line is don’t panic and make money mistakes you will regret later. Take things one step at a time with a level head and an eye for your financial health, and the rest will fall into place.

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