Not Sure What to Expect?

Whether it’s changes in monetary policy, a volatile stock market, or simply wondering why everyday items cost so much these days, economic uncertainty can leave you feeling uneasy about managing your personal finances.

Our conversation with Ethan Jiang, Assistant Professor of Finance at Western New England University, explored how tariffs and inflation affect financial habits, the importance of maintaining an emergency fund, and strategies for investing during uncertain times.

What’s the takeaway? Financial prioritization, diversification, and the significance of consistent investing are the key to weathering economic storms.

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Finding Financial Flow During Troubling Times

When the only thing certain is uncertainty, creating sustainable habits will help you maintain financial stability until the storm passes.

Here are some strategies for navigating the current economic volatility:

1. (If you can) Delay Large Purchases

Volatility can be cyclical. While it is difficult to forecast where the economy will be in six months, it is ok to press pause on larger purchases until you have a better idea of how recent economic policy decisions and macroeconomic conditions play out.

It can also give you more time to save up for the purchase to cushion its impact on your financial situation.

Overall, it’s ok to wait!

2. Emergency Funds Are Crucial For Financial Stability

During our podcast interview with Ethan, he shared the following advice for navigating uncertainty:

Establishing an emergency fund may not need more validation, but “the best defense against uncertainty” is an excellent stamp of approval.

Here are some tips for establishing an emergency fund:

• Determine your ideal financial cushion. While many individuals strive to save enough to cover 3-6 months of expenses, an emergency fund of $1,000-$3,000 can be a great start to give you some peace of mind.

• Carve out a portion of your monthly budget to allocate money to your emergency savings. Hopefully, you have a fantastic budget set up, but if you don’t, give this podcast episode a listen.

• Know when to tap into your emergency savings. Set boundaries for yourself. Your emergency savings should not fund your next vacation or help you make your next big purchase. It is your “pull cord in case of emergency” when uncertain times hit you harder than expected. You should only use it when it’s your last resort.

3. Investing During Uncertainty: Stay the Course and Diversify

In our most recent podcast episode, Ben and Ethan stress, “Time in the market is better than timing the market.”

Although adjusting your investment contributions during periods of economic volatility may be tempting, it’s worth considering staying the course.

That’s not hard and fast investing advice as much as a history lesson. Historically, individuals who consistently invest tend to outperform those who try to time the market to exploit advantageous investment opportunities.

Diversification is also critical during periods of uncertainty. In the podcast, Ethan discusses two types of risk that can affect your diversification strategy:  

• Cross-sectional risk: Investing across different companies, sectors, and securities to protect yourself from the negative impact of a few underperforming securities. The breadth of the types of investments protects you from risk.

• Systematic risk: This kind of risk is what we are experiencing now with the current macroeconomic conditions. Economic policy decisions and macroeconomic conditions influence how most stocks and other securities perform, so the risk isn’t as stock- or security-specific. In this case, diversifying your investment over time, gradually investing instead of immediately investing all of your money, protects you from risk.

Cut Through The Noise: Develop a Healthy Skepticism When Seeking Financial Advice

Be on the lookout for our next podcast episode!

As providers of personal finance content, we can confirm: A LOT of financial information exists on the internet and social media.

Some of it can be helpful (like learning to navigate economic uncertainty with your friends at ProsperOn). Some of it can also be unhelpful or outright harmful.

In our next episode, we’ll break down tips and tricks for cutting through the noise of personal financial guidance and information to help you develop a healthy level of skepticism when exploring personal finance content.

We’ll see you next month!

- The ProsperOn Team