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Feeling broke in a bad economy? Here are 4 ways to cope

Key takeaways

  • Your mental and financial health are intertwined — when one is in a good state, the other benefits.

  • During turbulent economic environments, try not to slip into a scarcity mindset and evaluate your spending habits to see if changes need to be made.

  • Keep working toward your future goals and try not to only focus on the present, even if it seems like financial milestones are far off due to the high rate environment.

According to experts, if you’re like most Americans and are feeling the strain of inflation on your wallet, there are a few ways you can protect yourself in a turbulent economy. Staying focused on your financial goals, committing to yourself, building your wealth and changing your perspective can all help your financial wellness.

Financial experts: 4 tips on how to cope with financial loss in a bleak economy

A tough economy can be difficult to weather, but with these four tips you can develop a strategy to keep building your financial health.

1. Stay focused

When rethinking your relationship with money, it’s essential to go beyond just fixing bad spending habits. Nick Wolny, senior editor with CNET, suggests a more holistic approach to financial wellness.

Apply your skills

We all have a variety of skills and hobbies, and often, there are a few that go underutilized at our day jobs. Now could be an opportunity to apply those skills to create additional sources of income, whether through freelance or part-time work.

“Yes, budgeting is important,” says Wolny. “But the amount of willpower you’re burning up to not buy a latté could instead be used to learn a new skill that would generate additional income for years to come.”

If you’re a writer or a digital designer, check out sites like Upwork for freelance gigs. If you want to sell your art, photography or products online, set up an e-commerce account with popular sites like Amazon or Etsy. You can even sell your product on social websites, like Facebook Marketplace or Instagram.

Just remember that this process takes time and likely won’t bring in large sums of cash quickly. However, with some patience and a real love for your craft, you may be able to garner extra cash each month.

Build up cash

As inflation continues to rise, it may be harder to save but that doesn’t mean that building up your cash reserves is impossible. If anything, it’s a reminder of how important it is to have money set aside.

While the possibility for a recession is lower than experts predicted, a quarterly economic indicator from Bankrate found that inflation is here to stay, at least for a little while.

According to the survey, most experts (41 percent) predict that inflation won’t hit the Federal Reserve’s benchmark 2 percent rate until some point by late 2025. That being said, Wolny encourages individuals to think about their savings since having lower debt won’t necessarily save you from impending expenses.

“Wealth building requires that you both generate enough income and learn how to keep and grow the money you already have,” he says. You can do this by prioritizing paying down debt while putting extra cash in a high-yield savings account or toward an emergency fund.

Learn more:6 ways to save money during times of high inflation

2. Focus on yourself

Between interest rates soaring and inflation, you may be asking yourself if it’s even worth saving money or paying down debt right now. Also referred to as “financial nihilism,” the focus of experiences and purchases in the now instead of future financial health can be a slippery slope.

With no guarantee that buying a house or paying down student loans will be possible in the near future, it can be tempting to slip into the here-and-now mindset. “The root emotion behind financial nihilism is a feeling of despair,” says Wolny. “Americans acclimate to ‘never being debt-free,’ which blunts interest in developing proper savings and investing hygiene.”

He encourages individuals to fight this thinking pattern, especially for those still dealing with financial aftershocks from the pandemic. “Take self-care and your mental health seriously so that you’re actually excited to show up for yourself and your money goals,” he says.

The best way to implement this practice is to make a conscious decision to put yourself first. If your financial circumstances have you feeling stressed out, try to connect with other people who may be going through a similar situation. You can also look into financial support programs — or if you’re really feeling the stress, consider counseling to help you cope.

“When you can get yourself out of survival mode, your thinking changes,” says Wolny. “Social media and influencer culture have us feeling like we should be further along in life. It can mess with your head. Stay the course and focus on stabilizing your unique financial situation.”

Learn more:How a financial therapist can help you with money anxiety

3. Build your wealth

Well-versed in investing and behavioral finance, James Royal, Bankrate senior wealth management reporter, understands the limits of one’s financial potential — spoiler alert: the limit does not exist. And while wealth can feel like a concept that’s out of reach for most, Royal says achieving that goal may be simpler than we think.

“The U.S. provides huge benefits to people with wealth,” says Royal. “The tax code is advantageous to those who buy stocks and purchase real estate. And the economy is run for those who have wealth. It’s absolutely vital to build wealth so that your money can start making money, and you can enjoy some of these benefits.”

Pay down your debt

If possible, prioritize paying down your debt to increase your cash flow and eliminate the stress of carrying debt. According to Royal, debt can hinder your ability to make decisions about your financial situation and adds more stress in an emergency, such as losing a job.

While it’s never a bad thing to pay down debt, how you pay it off matters. Don’t dip into your emergency or retirement savings to pay down debt, and always make the minimum payments to avoid interest accrual. Consider a debt consolidation loan to simplify multiple streams of high-interest debt or look into alternative payment plans to give your monthly budget a bit of breathing room.

Regardless of the method you choose, it pays to be aggressive with your debt, especially when it comes to the future financial benefits. “If you pay down debt, you get a guaranteed return in the sense that you no longer have to pay interest on the debt,” says Royal. 

Learn more:How to set up a debt payoff plan and stick to it

Start investing in stocks

“The biggest misconception is that stocks are only for the wealthy,” says Royal. “Instead, stocks are how the wealthy got that way.” In the last decade, stocks have become much more accessible.

Many money services now offer stock trading including Cash App, Stockpile, and SoFi. If you prefer to go the traditional broker route, look into companies like Charles Schwab or Fidelity investments.

Enlisting the help of a financial advisor or planner is the best way to make sure you’re investing your money wisely. This is especially true if you’re new to the game. Although it likely will come with a fee for your money invested, it’s important to protect your assets now more than ever.

If you’re not quite ready to jump into your investment journey, start with a 401(k). If your employer offers one, contribute up to match if possible, otherwise you’re basically leaving free money on the table. The same goes for an IRA. Check to see if your employer offers one and contribute up to their match if they do.

If an IRA isn’t offered, signing up for one is still a great way to dip your feet into the investing pool and is a helpful asset when saving for retirement. You can manage your investments yourself or enlist the help of an advisor — or robo adviser — to handle your portfolio based on your preferred risk level.

Learn more:How to start investing in 2023

Live below your means

The rise of buy now, pay later plans have changed consumer behavior and culture as we know it. It’s hard to live below your means when every purchase can be broken up into four interest-free payments. However, those payments, much like credit card spending, quickly add up and can lead to constant debt accrual.

When faced with so much economic uncertainty, it may be tempting to stop saving and start spending on short-term gratification. Financial experts advise against this.“Giving up is not a solution,” says Royal. “If you don’t make plans to improve your financial life, no one will do it for you, and you’ll be at the mercy of whatever misfortune comes your way.”

Be mindful of your budgeting and shopping habits to protect your future financial health. Instead of relying on financing for smaller ancillary expenses, prioritize what will grow your savings and bring you closer to your financial goals.

Learn more:How to build wealth

4. Change your mindset

From watching her community recover from the Great Recession to keeping up with the Fed’s latest policies, Sarah Foster, Bankrate U.S. economy reporter, understands the growing weight of debt in America. While she’s positive there are good times ahead, she advises holding on and holding strong during the tough times.

Start reversing bad habits

Take a close look at your card and bank statements to identify any unhealthy spending or budgeting habits. Learn what kind of spender you are to help solve the underlying issue and make a plan for the future.

Do you tend to put off important payments or pay only the minimum on a balance? Are you an impulsive buyer? Once you take stock of your financial habits, you can take steps to improve them. While this does require sacrifices now, Foster says this is the best path toward financial independence and a comfortable retirement.

Learn more:9 bad money habits that you should break right now

Face the inevitable

Hiding or blatantly ignoring your financial problems will only make them worse in the future and could prevent you from achieving long-term goals. Remember that your reality can’t change without you, so you need to practice being present for it.

Look through all of your statements and your budget carefully. If it’s too anxiety-inducing or you need assistance with managing your money, consider a financial planner or find resources online on how to better manage your income. Prioritize bulking up your savings and emergency fund for times such as these, and cut down on unnecessary spending for the time being.

“Having a substantial emergency fund can make a difference in affording bills and groceries, as well as sleeping at night when you’re worried about the direction of the economy,” Foster advises.

Learn more:How to save money and build up your savings

Let go of the idea of scarcity

Finances are a substantial portion of ensuring our day-to-day survival. One way to make sure they continue to run smoothly, even in challenging times, is to look at the bigger picture. “The best approach you can take to improve your relationship with finances is letting go of your scarcity mindset with money,” Foster says.

There are more ways than ever to make and save money. No longer are you relegated to putting all your eggs into one basket. Once you open yourself up to different possibilities, taking control of your finances becomes that much easier.

For Foster, it’s not only about how you spend your money. “It’s about how you can make your money work for you, so you can afford to take that vacation, buy that house or retire early,” she says.

Learn more:What is a financial plan? How to build one for your goals

The bottom line

Let’s be honest: The future is complicated. But for those who are wondering if there’s any value in saving for the future, the answer is yes.

Even though the economy looks grim now, there’s always a personal financial goal to strive for. Monitoring your spending and looking at your financial ‘ big picture’ is key to coping with a turbulent economic environment.

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