Editor's Note: This story originally appeared on Boldin.
Uncertainty. Fear. Confusion. Sacrifice. Acceptance. Anger. Excitement. There is a lot going on with the economy lately.
And, strong emotions about developments in Washington and across the world are piled on top of worry about our personal finances. However, it is possible to strengthen your financial well-being, even in times of economic uncertainty.
There are things you can do to improve your own financial situation — even with economic uncertainties.
What Is Economic Uncertainty?
Economic uncertainty refers to periods when the future of the economy is unclear due to factors like market volatility, inflation, job instability, or geopolitical events. It can impact everything from interest rates to personal finances, making it harder for individuals and businesses to plan ahead.
Understanding economic uncertainty helps us make informed decisions about saving, investing, and protecting our financial well-being.
How Is Economic Uncertainty Measured?
According to Econofact, economic uncertainty can be measured in three key ways:
Financial Markets: Asset price volatility, such as fluctuations in stock markets, reflects investors’ expectations about future economic conditions.
Survey Data: Collecting qualitative responses from businesses and consumers regarding their perceptions of uncertainty offers direct insights into economic sentiment.
Textual Analysis of News Reports: Examining the frequency of terms related to uncertainty in news articles provides a measure of public and media sentiment about economic policy and conditions.
10 Ways to Protect Your Financial Well-Being in Times of Economic Uncertainty
Here are tips that you can use, no matter what is going on in the world, to improve your financial well-being today and for the future.
1. Don’t Worry Too Much About Today’s Retirement Account Balances
Whatever your account balances say now, it doesn’t matter if you don’t have to withdraw the money.
The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst-case one-year, two-year, five-year or longer contraction of the economy will eventually rebound, assuming that history holds true.
There is no reason to sell if you don’t need the money. You will only be taking the losses. The losses are not a sure thing, not at all a reality, unless you sell.
2. Assess Your Short-Term Financial Health
When feeling anxious, it is a good idea to focus on what you can control now. Economic uncertainty can feel overwhelming. And, absolutely no one knows what is going to happen to our economy. But you can assess how you are doing today.
- How is your cash flow?
- Spending more? Inflation is real. You definitely see it at the gas station and probably the grocery store too. Now is a good time to really look at your spending and make some cuts if necessary.
- Can you increase income? If you are still working, what can you do to safeguard your job or diversify your income?
- Can you keep saving and investing? When times get tough, savings habits often fall by the wayside. However, the best time to save and invest is when the stock market is down.
- Do you need access to cash or income now? Assess the best (and worst) sources of emergency money and income.
- Doing okay? Breathe.
- Not doing okay? Breathe!
3. Keep Your Eye on the Long Term and Practice Radical Optimism
The most recent bad economy was at the start of the pandemic. Those were unprecedented times when lives as well as livelihoods were at stake. However, we navigated our way back to prosperity.
The pace at which we live and innovate is unprecedentedly fast. Any financial losses may be quickly regained.
Is recent past performance an indicator of future success? Nope. Maybe? We don’t know. However, it is important to remember that over the long haul, the financial markets have always gone up.
Practice radical optimism: Radical optimism is the belief that humanity’s future, despite obstacles, is filled with possibility and progress. However, it is not blind positivity; instead, it is a philosophy that acknowledges that progress often emerges from uncertainty, failure, and gradual improvements.
When these ideas are applied to personal finance, the framework offers fresh insights into building wealth. The focus of radical optimism is on the long-term future.
4. Take Advantage of Anxiety (Really)
Anxiety about economic uncertainty is a normal human response. From an evolutionary perspective, anxiety is a survival mechanism that helps us recognize potential threats and take action to protect ourselves.
- The good thing about anxiety: In financial matters, this instinct can be beneficial — prompting us to assess risks, prepare for downturns, and make thoughtful decisions about our money.
- The bad: Unchecked anxiety can also lead to impulsive reactions, such as panic-selling investments or avoiding important financial planning.
Instead of letting fear drive rash decisions, use it as a signal to take proactive steps: build an emergency fund, diversify investments, and stay informed.
Recognizing anxiety as a useful tool — rather than something to be feared — can help you navigate financial uncertainty with greater confidence and control.
5. Plan for Worst-Case Scenarios
In the absence of being able to tell the future, it is important that you run worst-case scenarios and create plans AND backup plans for your current and future finances. Facing the worst possible scenario is one proven way to overcome anxiety.
In most cases, you’ll find that the worst case either isn’t that bad or it can be addressed.
Don’t just worry about what is going to happen to your finances. Run scenarios and find out. No matter what, in all possible eventualities, you will probably find that you can make things okay.
6. Review or Develop Your Investment Policy Statement
You probably know that you need a well-diversified asset allocation plan. However, most people are not as familiar with the idea of an Investment Policy Statement (IPS).
An IPS is meant to define:
- Investment goals
- Strategies for achieving those objectives
- A framework for making intelligent changes to your plan
- Options for what to do if things don’t go as expected
A strong IPS can be an invaluable tool for helping you achieve your financial objectives and to stay the course when unpredictable things happen.
7. Take Advantage of a Down Market
There are all kinds of ways to prosper when the markets go down. Explore moves to consider in a stock market correction, crash, or bear market.
8. Keep Up With Regular Savings Contributions and Consider Investments
If possible, keep up with your regular savings contributions. And, if you have cash available, consider buying. The time to buy into the markets is when they are down.
You don’t have to time the exact bottom. When the market is sliding, many people buy a little bit every day and keep buying every time the market dips.
The advantage of this strategy is that you are more likely to get in before things rocket back up.
You see, the reality is that stocks typically soar back upward well before the crisis that provoked the selloff has run its course. The market recovery from the 2008-09 financial crisis illustrates this vividly.
Despite assurances from the pundits that investors should not expect a V-shaped recovery, stocks did exactly that and recovered very quickly.
- From the market low in March 2009, the Dow Jones index gained 30% in the span of just three months.
- By the end of the year, it was up more than 60% from its low point. All of this occurred despite fear continuing to grip the market and the widespread belief that stocks were experiencing a false recovery and would fall below their March lows in short order.
- Investors who were still waiting for the “all clear” signal to get back into stocks instead saw stocks leave them in the dust.
9. Be Very Cautious With Big Financial Moves
For the vast majority of investors, especially those who have a long-term investment strategy, doing nothing when stock markets go down is the best policy.
The stock market goes up and down in the short term. Over the long haul, it has historically done nothing but go up. Even a worst-case one-year or two-year contraction of the economy will likely eventually rebound.
So, most of the time, it is important to remain calm. Don’t let emotions or stress take over. Just do nothing. Ignore it.
10. Do What You Can to Control General Worry, Anxiety and Stress
Depending on your personality and the news of the day, controlling worry is a tall order. The following tips might not help with the financial anxiety that comes from economic uncertainty, but they are sure to make you feel better overall.
Limit media exposure: Being informed is critical. Curling up with your phone or laptop all day and endlessly scrolling is not healthy or useful. Experts suggest you set a limit for how much time you spend consuming information each day and stick to it.
Practice four-count breathing: I used to think that breathing exercises were baloney until a doctor explained to me that you can trick your body into relaxing by mimicking the way a healthy body inhales and exhales when actually relaxed. A good basic breathing exercise is to:
- Inhale for four seconds.
- Hold breath for four seconds.
- Then exhale for four seconds.
- Repeat and feel your body relax.
More Tips for Coping With Stress From Economic Uncertainty
If using social media, engage: Research shows that people who use social media actively — by sending messages, leaving comments or talking in group chats, for example — report being happier than those who simply scroll through their feeds, absorbing news stories and viral videos.
Practice meditation: There are lots of online programs to help you learn.
Write: Spend a couple of minutes every day writing about what worries you. There is mounting evidence that keeping a journal provides a host of emotional and health benefits, including reducing anxiety.
Plan: Write down what worries you and a plan for addressing it. The Boldin Planner can help.
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