The world has changed a lot in recent years. From a global health crisis to changing political and environmental landscapes, it’s normal to feel concerned for the future. But how does this uncertainty impact our finances, and what can we do to stay on top of things?
Political shifts, like a change in government or a major economic event, can create a ripple effect that impacts our individual finances. Things may become more expensive, interest rates on debt and savings may increase or decrease, and access to national services like healthcare may change. You may also experience changes to the taxes you pay and the level of job security in your industry or field.
While every country faces its own unique political challenges, the geopolitical climate can mean one country’s problems impact another country. For example, even if you don’t live in the US, a new president can have a knock-on effect on your investments and the cost of goods and services, like recent tariff changes.
Unfortunately, we don’t always know what’s around the corner. But with uncertainty, one of life’s only ironic certainties, there are some steps we can take to withstand fluctuations in our circumstances.
Relying on one sole income source can put you at risk of economic and political changes. If you lose that income, you may find yourself financially vulnerable quite quickly. Diversifying how you earn, for example, with a side hustle or income-producing investment, can help you build security outside of just your job.
This applies to your investment strategy, too. Diversifying where your money is invested, across industry, asset type, and asset location, can help you bolster the impacts of different market conditions.
Never has there been a more critical time to build an emergency fund. If you don’t have one, start one. And if you do have one, consider increasing it. We tend not to think about emergencies until we’re facing them head-on, but having the foresight to save some money when things are good, so you’ve got it for when things are bad, is a wise choice.
Focus on having a minimum of 3-6 months’ worth of basic expenses to give yourself a buffer period to find new income if you lose your job or face unexpected expenses.
Economic downturns are a great time to check in on your insurance policies and make sure they still suit your circumstances. Insurance can save you from facing a big financial outlay if you experience damage to your home or car, and may even pay out if you experience illness or injury.
We all have different risk appetites at different times in our lives. During times of uncertainty, it’s important to revisit your own personal situation and look at how much risk you can take on. You might decide to save more and invest less to increase your access to cash, or you might switch your investment strategy to better suit the market conditions. Many choose to do this if they’re nearing retirement age during a downturn.
One of the best things you can do is to look ahead to your next 3 months, your next 12 months, and your next 2-5 years. What do you expect your life to look like? What’s important to you? What are your responsibilities, and will they change?
Political and economic uncertainty impacts everyone differently, and the way you respond will come down to your own needs. For example, if you’re planning to start a family, you may need to prioritise access to cash and maintaining cash flow. If you’re planning to retire, you’ll likely be focused on protecting your nest egg. If you’re trying to climb the career ladder and invest for your future, you might choose to take on more risk based on your lower responsibilities.
When things are heavy, it can be tempting to bury our heads in the sand and hope it goes away. Unfortunately, while avoidance provides psychological relief, it can have significant consequences.
Try to balance staying informed in a way that doesn’t leave you overwhelmed and powerless. Have conversations with people in your life, and consider expert advice from someone like a financial advisor or a career mentor for another perspective.
Regardless of your own situation, one of the best things you can do is get on top of your finances. Know where your money is going, know what your basic living costs are and where you can trim the fat if needed, and know how many months you can live on your emergency fund should you run into income challenges. PocketSmith is the ideal way to get full visibility over your income, expenses, debts and savings, so you can make informed decisions about how to look after yourself and your family.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.
