As a country, we’re facing a lot of economic uncertainty right now, largely as a result of rising inflation, higher interest rates, and the growing threat of recession. While you can’t change the broader economic environment, you can modify your behavior by adopting better financial habits. Here are 5 practices that can serve you well.  

1. Factor inflation into your retirement income plan

After a long period of very low inflation, the events of 2022 have raised our awareness of the impact this force can have, both suddenly and over time. If you’re already retired or approaching retirement, make sure you factor some degree of inflation into your retirement income plan. Your income will have to increase if you’re to keep up with the rising cost of living. The smartest plans can give you raises from time to time on top of the increases in your Social Security checks.  

2. Take a closer look at your budget 

If you haven’t taken a long, hard look at your budget recently, make time to review every line item and identify expenses you can eliminate or reduce. It goes without saying that now’s not the best time to use long-term financing to buy big-ticket offers. What may seem affordable today could become a burden if, for example, your employer eliminates your job or your energy bill soars this winter.  

3. Build up emergency savings

As you rework your budget, make room for regular deposits into an emergency savings account. Short-term savings provides a good backstop for unexpected expenses and emergencies. (And in case you’re wondering, inflation and recession do fall into those categories.)

An automatic investment feature, like the one in 401(k) plans, can help you stick with the program. Be sure to check your employee benefits, as some companies are now offering short-term savings plans in addition to Health Savings Accounts.

If you’re already retired, it’s smart to have some of your assets in guaranteed accounts that allow you to withdraw funds without penalty whenever you need them.   

4. Reduce your reliance on credit cards   

In the midst of rising prices, are charging more to your revolving credit card and making payments that are at or near the minimum?  Interest rates on credit cards are already high and will climb higher as the Federal Reserve raises interest rates. If you carry an average balance, you could find yourself paying hundreds more in interest this year.  That’s money you’re throwing away.

If you love the convenience of credit cards, use them but pay your balance in full every month and rely on those cards that offer cash back and charge no annual fees.

5. Maintain your long-term investment strategy

If you’re feeling recession-related anxiety, you may be tempted to buy and sell long-term investments at the wrong time and suffer unnecessary losses. Generally speaking, there’s no need to change your asset allocation or investment choices unless your financial goals change. Remind yourself that the our country has experienced many recessions, and all of them have been temporary. The economy and markets ultimately bounce back, although no one knows how long it will take. 

If you’re worried about making the right investment moves or want to adopt better financial habits, feel free to reach out to Johnson Brunetti for guidance.