In the realm of wealth and investment, the situation in the past few years has been like a roller coaster ride, and it has not yet shown signs of improvement. Faced with the volatile situation and economy, how can individuals navigate their personal financial planning to weather the storm smoothly? Below are recommendations from several financial experts.
Starting with the basics. Create a budget and list your monthly expenses. Wisely planning expenses does not necessarily mean drastically cutting them but rather tracking where your money is going. This helps you formulate a financial plan.
If you need to cut expenses, review your budget and prioritize your expenditures. Determine what is essential, what is discretionary, and try to reduce the latter as much as possible. Unnecessary expenses may include entertainment, new clothes, takeout food, and more.
According to Forbes, personal finance expert Jaime Catmull emphasizes the importance of budgeting savings and retirement as essential expenditures. For bills that need regular payments, consider setting up automatic payments to ensure timely bill payments.
Financial expert Jeorgia Brown suggests following the “50/30/20” rule as a guideline: allocate 50% of the budget to needs, 30% to wants, and 20% to savings and debt repayment. Adjust these proportions as needed to build savings during tumultuous times.
Establishing an emergency fund is crucial. In times of economic uncertainty, inflation, and concerns about job loss, having a buffer to cope with unforeseen events is necessary. Experts generally recommend saving enough to cover three to six months of living expenses, ready for immediate use.
If saving for three to six months worth of expenses seems daunting, start small and build up gradually. Brown shared her experience, saying having an emergency fund gave her confidence to explore new opportunities without feeling rushed or panicked when leaving her corporate job.
“To save up this fund, I automated my savings by having a fixed amount deducted from each paycheck directly into a savings account separate from my checking account. This separation makes it easier for my savings to grow without being easily accessed,” Brown added.
She also recommends opening a high-yield savings account to earn interest on idle emergency funds.
Since the inception of the S&P 500 index in 1926, the average annual investment return has been 10.6%. However, years like 2008 and 2020 saw declines of 20.3% and 19.07%, respectively.
Risk tolerance is a highly personalized decision. Catmull advises ensuring you can bear the risks of the investments you choose. Consider using research tools like EquitySet to simplify complex data and analysis related to stock performance.
Personal finance columnist Selena Maranjian stresses the importance of a key investment principle during turbulent times: do not place money you expect to need in the next five years in the stock market. For more caution, avoid putting money needed in the next ten years in the market.
Now more than ever, it is crucial to remember this principle, as it holds true in any economic or political environment. As we can never predict the near future accurately, failure to heed this rule may lead to selling stocks at lower prices to raise needed funds for expenses like children’s tuition or a home down payment during a prolonged market downturn.
In times of uncertainty, what can you do concretely? Here are some suggestions:
– Evaluate the stocks you hold. Ideally, invest in robust companies that can weather economic downturns.
– Consider holding some healthy and steadily growing dividend stocks. Even if the stock market stagnates long-term, you can still receive dividend income.
– Move funds needed in the next five years to less volatile investments such as certificates of deposit, money market accounts, or bonds.
With inflation rates rising each year, finding ways to increase income is essential. This can involve seeking a part-time job, asking for a promotion/raise, or starting a business. Diversifying income sources is vital for future financial instability, as relying solely on one income stream is risky. Your side job or business can serve as a backup income source when your primary job is slow, and vice versa.
Before using credit, ensure your credit score remains in good standing. Following Brown’s and financial blogger Garit Boothe’s advice, you can maintain a high score by:
1. Paying bills on time. Payment history accounts for 35% of the credit score and is crucial. Late payments can significantly impact your score.
2. Regularly check your credit reports for accuracy. If you find errors, communicate with the credit bureaus to resolve them promptly.
3. Pay off credit card debt every two weeks rather than monthly to keep a lower utilization rate. Ideally, keep credit card utilization below 30%.
4. Increase your credit limit to lower the utilization rate. Requesting a higher limit can reduce the ratio of debt to available credit, positively affecting your score.
5. Longer credit history typically leads to a higher score. Thus, avoid opening multiple new accounts, as more cards may shorten your credit history and lower your score.
6. Become an authorized user on another’s card. Holding an authorized user card can improve your score, especially if the primary cardholder has a high credit limit, low utilization, and good payment records.
7. Utilize various credit accounts, including revolving credit, installment credit, and open credit accounts. Using a mix of credit account types can boost your score.
8. Don’t close old accounts if you’ve recently opened a new card. Having multiple cards can increase your available credit and lengthen your credit history.
9. Consider applying for a Credit Builder loan to expedite credit improvement.
Debt can be stressful during turbulent times. Regain control through a debt repayment plan. List debts in order from smallest to largest and use the “snowball method” (paying off smaller debts first) or the “avalanche method” (paying off higher interest debts first) to repay them.
Brown encourages reaching out to creditors/institutions proactively, as they may be willing to lower interest rates or provide repayment plans.
She resolved her credit card debt issue using the “snowball” method, saying, “Rapidly paying off small debts gave me a sense of accomplishment and motivation to keep moving forward.”
The uncertainty in the economic environment may make you feel powerless, but knowledge is the antidote to fear. Financial education can empower you during challenging times.
You can enroll in online financial knowledge courses, read personal finance books, or explore free educational resources like the personal finance columns on Epoch Times website.
Additionally, before making any decisions regarding wealth management, consider seeking advice from trusted financial advisors.
The best advisors will objectively view your financial situation through a lens of professional knowledge. They understand market trends and investment tools with different risk and return profiles. They can help you formulate comprehensive plans to achieve your financial goals.
(This article provides general information for reference only and does not constitute any recommendations. Epoch Times does not provide investment, tax, legal, financial planning, real estate planning, or other personal finance advice. For specific investment matters, consult your financial advisor. Epoch Times assumes no investment responsibility.)