4 Tips To Handle Your Finances in an Uncertain Economy,
4 Tips To Handle Your Finances in an Uncertain Economy, According to Money Expert Michela Allocca
Chris Ozarowski Wed, October 9, 2024 GOBankingRates
Michela Allocca is a personal finance creator who shares tips for managing money through her social media pages. In a recent post on her Instagram @breakyourbudget, she offered viewers four tips to help them handle their finances and prepare for an uncertain economy or even a recession.
Why Recession Prep?
So why prepare for a recession? According to Allocca, in recent years there has been a noticeable rise in financial anxiety among people across the U.S. This isn’t necessarily confined to any particular age group, income bracket or industry — concerns are universal. Record inflation has impacted essential expenses like rent, groceries, gas, insurance and home prices.
Recently, an economic indicator known as the Sahm Rule was triggered, signaling that the country may be on the verge of a recession. The Sahm Rule is used to detect the start of a recession quickly. Developed by economist Claudia Sahm, it focuses on changes in the unemployment rate.
The rule states that if the three-month average of the national unemployment rate rises by 0.5 percentage points or more above its lowest point in the previous 12 months, it signals the beginning of a recession. A recession could mean more layoffs and a tougher and more competitive job market, so preparing as much as you can can be a good idea.
Michela Allocca’s 4 Tips for Recession Prep
1. Take a Financial Snapshot
Allocca suggests starting by getting a firm understanding of your current financial situation. “Review your accounts and get clear on how much you have and where,” she said.
Start by listing all your bank accounts, investment accounts, retirement funds and other assets. Then list all of your debts, such as credit cards, student loans or mortgages. This gives you your net worth — the difference between your assets and liabilities.
Next, assess your cash flow — the amount of money coming in and going out of your accounts each month. List all sources of income, including your salary and any freelance work or side gigs. Then, compare that to your expenses by reviewing bank statements and receipts. You should categorize your spending into essentials like housing, utilities and groceries, and non-essentials like entertainment and dining out.
By auditing your outflow, you can identify areas where you might be overspending. If you find places where you are spending more than you need to, you can cut back and put that money aside for a rainy day.
2. Audit Your Cash Position
Allocca explains that it’s important to decide where you keep your money, especially when the economic situation is more uncertain. She describes this as auditing your cash position. Allocca lists two options for where to keep cash.
One option is a high-yield savings account. Allocca says that this is “a great place for your emergency fund or any other short-term cash savings.” An emergency fund should be one of your top priorities — you’ll need it if you lose your job or have unexpected expenses.
TO READ MORE: https://www.yahoo.com/finance/news/4-tips-handle-finances-uncertain-140210755.html