How to Protect Your Finances During Economic Uncertainty

There's a lot in the news right now that might have you feeling uncertain about your finances – high debt and delinquencies, student loan repayment, and talk of a possible recession to name a few. Worries about the economy are causing consumers to slow down their spending, and, as of March, consumer sentiment fell for the third straight month since January.

We aren’t saying there is a recession (we will leave that to the economists), but it’s important to understand this term to better understand the actionable steps you can take to safeguard your finances. The textbook definition of a recession is a major, widespread, and drawn-out economic downturn. Plus, there are two straight quarters of negative gross domestic product (GDP) growth.

During times of economic uncertainty, you can expect to see a spike in unemployment and a decrease in consumer spending. If you're feeling anxious about the economy, the good news is that there are steps you can take to protect your finances.

1. Take stock of your financial priorities

• Your budget
  A good first step is creating a budget or money management plan to have a bird's-eye view of your monthly take-home pay and your monthly basic living expenses.
  
  
• Your debt load
  Also, see how much debt you have. This includes mortgage payments, credit card debt, car loan payments, personal loans, and student loans. You'll also want to note interest rates, monthly payments, and how many payments you have left.
  
  
• Upcoming life events
  Do you have any major life-changing events on the horizon, including getting married, moving, or having a child? These milestones are exciting, but they also come with financial considerations. You need to figure out how these milestones can affect your finances – and how you might need to make adjustments along the way. For example, consider if this impacts your life goals and what financial trade-offs you’ll need to make.
  
  

2. Focus on debt repayment

No matter the economic climate, it's important to try to pay off your debt. It may seem like a big mountain to climb, but letting your debt payments fall by the wayside can hurt your credit and push back your goals, both in the short and long term.

If you lose your job or have your hours cut back, what options do you have to make your debt load more manageable? There are some small steps you can take so that addressing your debt might not seem so overwhelming, including:

• Moving your credit card balance payment due dates. The new due date can be more in step with your cash flow. For example, moving it closer to a time of the month when you're more in the flush.
• Asking if your lender or creditor has a hardship department. If you're struggling financially, you can explain your situation and see their options to help alleviate your stress. For example, they might be able to lower your monthly payments or even put a temporary pause on your payments.

3. Keep an eye on your spending

The budget we mentioned previously becomes important to help you figure out what money is coming in and out each month. This includes:

• Your income: This includes your take-home pay. It's also a good idea to note when you or 30th of the month? Also, include any money earned from side hustles. If the amount you rack in varies, look at past earnings and use an average.
  
  
• Your living expenses: You'll want to factor in every recurring living expense. The most common way to do this is to divide your living expenses into two main categories: your fixed living expenses and your variable or discretionary living expenses.
  
  
• Fixed living expenses are those where the amount you spend each month remains largely get paid. Is it every other week, or the 15th consistent? This includes housing, utilities, cell phone bills, insurance premiums, car loans, and other debt payments. Certain living expenses, while the amount typically remains the same, there are also ones that you may cancel and aren't critical – think gym memberships and streaming subscriptions.
  
  
• Variable expenses are living expenses where the amount spent fluctuates from month to month. These include eating out, entertainment, shopping, pet care, along with household and personal items.
  
  

Once you've figured out your expenses, track your spending and see if your estimated living expenses match what you actually spend. If you find yourself overspending, see what you can make adjustments. Beyond that, tightening the purse strings during economic uncertainty might be a good idea. So, even if you aren't going overboard, see if you can cut back so you have a bit of padding.

Remember: A budget isn't about feeling restricted, and it's not about living your life in a way that makes you feel deprived. It actually has the opposite effect. By having greater awareness of your financial situation, you can make decisions that help you feel like you have more control and, in turn, feel more empowered.

4. Build your credit

Another important area to not let slip during uncertain times is your credit score. After all, your credit score is an important factor determining if you can get the financing you need to buy that house, get that car, or maybe even get married. It can be expensive to have a lower credit score because it can impact interest rates and terms.

If you're new to credit or are working on re-establishing your credit, paying your credit card bill and loan payments on time can help you build your score. Your payment history makes up 35% of your FICO® score, so you'll want to stay on top of your payments.

Another way to build credit is through Self's free rent reporting.* Yes, you can turn your on-time rent payments into credit-building opportunities. When you sign up for Self's free rent reporting service, Self will report your on-time rent payments to all three credit bureaus. There's no credit card or credit check necessary.

5. Start an emergency fund

If you don't have a sufficient rainy day fund, you're not alone. In an annual BankRate survey, 59% of folks in the U.S. don't have the funds to handle a common emergency. Additionally, in a U.S. News Survey two in five Americans (and nearly half of women) don't have a rainy day fund. But without an emergency fund for the unexpected, you'll likely find yourself in a greater debt hole – or resorting to expensive forms of financing.

While it's generally recommended to have six months of living expenses set aside for emergencies, your situation may require an additional buffer. Especially, if you have dependents.

An emergency fund can feel like a tall order – especially when there's much to be anxious about. But start small. Aim to stash away $100, then go from there. You can start by squirreling away $10 a week, which would only take 10 weeks and if you keep it going after a year it can add up to $520. Consider using automatic savings if you can, which means once it is built into your budget you hopefully won't have to worry about whether or not you can afford that $10.

6. Have multiple streams of income

Your employment status might be impacted by the economic situation, depending on your job and industry. If you anticipate layoffs or potentially cut hours, having multiple streams of income can help bolster your income.

So how much can you expect to earn? While it depends, a recent survey by Bankrate reveals that the average side hustler brings in $891 a month. Although they also point out not everyone is bringing in hundreds of dollars a month.

Do you feel like throwing your arms up in the air at the thought of working on top of your existing job? We get it. Consider starting with a side hustle that's easy to sign up for and has a lot of flexibility, like driving for a ridesharing app or making food deliveries.

See if you can try it for a few hours and go from there. You also want to look at how often and early you can get paid for the side gig, which can impact your cash flow. For example, some side hustles allow you to get paid instantly – typically for a fee. Be sure to consider the need for immediate cash against the cost.

7. Keep your oldest card open

Keeping your oldest credit card open can help with your length of credit history, which makes up 15% of your FICO® score. Not only does it help with this part of your credit history, but it also can help with your credit usage, which makes up 30% of your score (aka amounts owed).

When you have another credit card open, it increases the total credit limit of your cards, which lowers your credit usage. For example, let's say your oldest card has a $5,000 credit limit and your newest card has a $10,000 limit with a $3,000 balance. If you keep it open, your total credit limit is $15,000, so your credit utilization is 20%. If you closed your oldest card, your total credit limit would decrease to $10,000, and your credit usage would be 30%.

Build your financial foundation, no matter the state of the economy

Whether you’re facing economic uncertainty or not, it's important to focus on doing what you can to take the steps and lay the groundwork for a financial foundation.

Making adjustments as needed, being proactive, and knowing what you can control can help you feel empowered and make slow – but steady – progress.

*Results vary. You may not receive an improved credit score. Not all lenders use scores impacted by rent/utility payments.

About the author

A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is passionate about helping freelance creatives design money systems on irregular income, gain greater awareness of their money narratives, and overcome mental and emotional blocks.

Her work has appeared in publications such as Bankrate, Time's NextAdvisor, CNET, Forbes, Salon.com, and BuzzFeed. She is the 2022 recipient of Money Management International's Financial Literacy and Education in Communities (FLEC) Award, and a two-time Plutus Awards nominee for Best Freelancer in Personal Finance Media. She lives in Los Angeles where she spends her free time swimming, drumming, and daydreaming about stickers.

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