Uncertainty is inevitable in our constantly changing, fast-paced world. And in recent years, it’s become clear just how uncertain things can be. On a day-to-day basis, we deal with all kinds of societal, technological, and of course, economic uncertainty.
With high-interest rates and the rising cost of basic goods, economic uncertainty can bring stress to your everyday life.
And while there are many factors out of your control—like the cost of groceries, housing prices, and interest rates— you can control how you financially prepare for and respond to economic uncertainty.
Being financially prepared and knowing how to respond to uncertain times ultimately helps you cope and sets you up for financial success in the future.
So, how do you set yourself up to prepare for and cope with difficult financial uncertainty?
It all starts with financial literacy.
What Is Financial Literacy?
Financial literacy, or financial capability, is a broad term. It refers not only to financial knowledge, concepts, and skills but also to the ability to put them all into practice. It includes having the skills to budget, save for emergencies, manage your debt, invest and plan for retirement and beyond, and ultimately reach your financial goals. It also includes knowing how to use different financial products and services to make reaching those goals easier.
The truth is, financial literacy isn’t as widespread as we’d hope. On the 2022 TIAA Institute-GFLEC Personal Finance Index, which is an assessment of American adults’ financial literacy, respondents answered only half of the questions correctly on average.
We have a lot of work to do when it comes to improving our collective financial literacy. Doing so is critically important on an individual level and has major benefits for all aspects of your life.
Why Financial Literacy Is Important
As we mentioned above, being financially literate helps you cope with economic uncertainty and be better prepared for whatever the markets may throw at you. Understanding your unique financial situation can help you make decisions from a place of security rather than stress. Generally, financial literacy helps you make smarter money decisions. More specifically, financial literacy can help you:
- Keep more of your money. When you know how to spend wisely on the things that matter most—and when you can avoid costly mistakes—you can plug money leaks in your budget and keep more cash in your bank account and investments.
- Handle emergencies with ease. Many emergencies require money to fix. Being financially prepared for emergencies can help ease the burden without going into debt.
- Pass down healthy money habits to your kids. They’ll notice when you show an interest in practicing healthy money habits, and they’ll want to do the same.
- Borrow with less hassle at a lower cost. A good credit score goes a long way and can help cut costs if and when you need to borrow. Good credit means more options, and having more options is, financially, a great thing.
- Keep your cool during an economic downturn. Recessions are not fun and they can affect us all financially and emotionally; but financial literacy can help you rest easier knowing you’ve been hard at work saving and investing for your future.
- Live the life you want to live with less sacrifice. Many—if not most—goals in life require a financial investment. When you have the funds to do what you want, you can spend more time enjoying life to the fullest.
Financial literacy trickles into every aspect of your life. Improving your financial literacy translates into more than just financial success. Less stress and more joy as a result of financial literacy can change your life on a major scale.
5 Financial Literacy Tips to Help You Cope with Economic Uncertainty
Financial literacy sounds great, but how do you achieve it?
The good news is, improving your financial literacy is easier than ever. That’s because financial information, products, and services are more widespread and, in many cases, less expensive than in the past.
Aside from digging into the resources that are out there—reading books and blogs, listening to podcasts, and talking to financially savvy friends—here are some concrete steps you can take to improve your financial literacy and prepare yourself to cope with economic uncertainty.
1. Allocate time to spend on your finances
Knowing how to improve your financial situation won’t help you unless you actually take the time to implement it. That’s why setting aside time to dig into your budget, check on your accounts, and track progress toward your goals is so important. Whether it’s daily, weekly, or monthly, get in the habit of having regular check-ins. And if you’re married, make sure you plan these sessions with your spouse.
2. Save for the unexpected
Weathering economic uncertainty comes down to planning for the unexpected. The best way to financially prepare for uncertainty is to build a healthy emergency fund. If you don’t already have one, set aside three to six months’ worth of expenses for emergencies and keep it in an accessible account. If you have dependents or a fluctuating income, consider saving even more.
3. Build credit—while avoiding bad debt
Having solid credit gives you more options. It allows you to borrow at a lower cost and helps you qualify for better financial products. The first step in building healthy credit is to keep tabs on your credit score and check your credit report regularly to make sure there are no errors. Then use credit responsibly—by paying off your high-interest debts in full and on time.
4. Plan for your future and your legacy
Planning for your future is a major part of financial literacy because the actions you take today have major impacts on your life down the road. In uncertain times and market declines, knowing you’ve been planning for retirement goes a long way. Do what you can now to ensure a comfortable, enjoyable retirement. Make sure you’re investing for the long term, protecting your assets with the right insurance policies, and creating a plan for your estate.
5. Get the right professional help
Self-study and money-smart friends can go a long way in boosting your financial literacy, but at some point, you may want professional help. Unfortunately, we hear too many stories about our clients’ negative experiences with previous financial planners who didn’t take the time to build trusting, collaborative relationships.
Make sure you team up with someone who not only takes a holistic approach to planning but who’s a fiduciary and has your best financial interest at heart. A great financial planner can make sure you have a plan for both short- and long-term goals, answer your complex questions, and confirm your financial strategy matches your goals.
Invest in Your Own Financial Literacy
Becoming financially literate is one of the best things you can do for yourself and your family. Money isn’t everything, but it sure makes things easier when you’re dealing with economic uncertainty. Understanding how to make your money work for you and last for your lifetime—maybe even leaving something for your children and grandchildren—helps you live life fully and with less stress.
If you’re feeling lost, confused, overwhelmed, or simply like you should know more about your financial situation than you do, it’s time to get support. If you’re ready to team up with a holistic financial planner, we’d love to meet you.