The simplest path to financial security is to make a lot of money. That’s easier said than done, though. Furthermore, there’s no shortage of stories of people who earned a lot and later became destitute. Having a strong financial safety net means you can weather uncertainty, whether that’s in your personal life or the economy writ large.
Financial Insecurity
Forbes has found that 28% of Americans have savings below $1,000. That’s more than a quarter of people in this country who probably can’t even pay a month’s worth of bills on their savings. That’s a problem, especially as we’re in uncertain economic times, which is also a partial cause of the problem.
Choppy Economic Waters
Many factors are making it difficult to predict where the economy is headed right now. There’s the ever-changing threat of tariffs, but that’s not the only issue. There’s stubborn inflation, global conflicts disrupting resource extraction and supply lines, questions of how artificial intelligence will affect the workforce, climate-related disasters and increasing government debt.
You’re probably not in a position to exercise much control over any of those macroeconomic factors. But you can control your own finances.
Tips for Building Your Financial Safety Net
Here are some tips to help increase your financial stability:
Perform a Self-Audit
It’s healthy to interrogate your spending habits periodically. How much do you spend on essentials? How much do you spend on discretionary purchases? This can inform how much you need to save to cover your bills if your income decreases, and might reveal some opportunities to reduce spending.
Spend Less
For many, the most effective way to save more is to spend less. Can you reduce how often you eat out? Can you be more judicious with big-ticket purchases? Can you cycle to work or take public transit instead of taxis or rideshare services? Reducing spending isn’t a quick fix, but it can add to your savings over time.
Earn More
If you or a family member is in a position where you can take on more work, now might be a good time. The economy isn’t in terrible shape and the job market is decent right now, so maybe you can augment your income.
Invest?
This is the biggest question when the economic future is uncertain. Should you invest your money in an unstable market?
All we can do is look at the past. History shows that slow, steady and diversified investments pay off over time. A general index fund might take a hit now and then when the economy is bad, but over decades, it almost always accumulates a decent return. This makes mutual funds good for retirement savings.
You can also look at what technologies, products and services are likely to be in demand in 10 to 20 years and invest a modest amount in those. But if you don’t have the stomach for the market, that’s fine. A high-interest savings account where you can deposit money regularly — and withdraw it rarely — can see you through some rainy days.
