May 16, 2023

Getting Started with Investing and Budgeting in Times of Economic Uncertainty

In the face of economic uncertainty, including inflation, federal debt limit talks, and the possibility of a recession, many individuals are concerned about their financial well-being. It can be challenging to navigate investments and budgeting during such times. Here are some guidelines to help you get started:

1.         Begin by assessing your financial situation: Calculate your net worth by determining the value of your assets (cash, investments, properties, etc.) and subtracting your liabilities (debts, loans, etc.). If your net worth is negative, save more and reduce expenses.

2.         Utilize the "60% Solution" for budgeting: Allocate 60% of your gross income to cover essential expenses such as taxes, housing costs, and debts. Allocate 30% to savings—20% for long-term savings like retirement accounts and education funds, and 10% for short-term savings like an emergency fund. The remaining 10% can be used for discretionary spending.

3.         Track your income and expenses: Use spreadsheets, budgeting software, or mobile apps to monitor your earnings and expenditures. Consider using popular apps like Mint or Goodbudget or online spreadsheets like Google Sheets. This will help you stay organized and make informed financial decisions.

For those hesitant about investing:

4.         Prioritize financial goals: Establish your priorities and financial objectives before entering the stock market. Focus on building an emergency fund, paying off high-interest debt, and contributing to retirement savings accounts.

5.         Build an emergency fund: Aim to have three to six months' living expenses in an easily accessible high-yield savings account. Look for online savings accounts that offer competitive interest rates.

6.         Pay off high-interest debt: Start by paying off any outstanding credit card debt since the interest rates are typically high. Eliminating this debt offers a significant return on investment.

7.         Begin investing in retirement accounts: Contribute as much as you can to workplace retirement plans like a 401(k) or 403(b). If your employer doesn't offer a plan, consider opening a Roth IRA. Self-employed individuals can explore options like a Solo 401(k) to contribute more towards retirement savings.

8.         Consider diversified investments: A good starting point for beginners is investing in an S&P 500 Index fund. As your portfolio grows, you can expand your investments by adding other stock mutual funds and exchange-traded funds. Consult with a financial advisor to assess your risk tolerance, financial goals, and investment time horizon.

9.         Evaluate stable value funds: If you prefer lower-risk investments, stable value funds that include a mix of bonds may be suitable, especially during periods of high-interest rates.

For individuals concerned about retirement savings:

10.       Assess retirement needs and life expectancy: Consider at what age you want to retire and evaluate the impact of Social Security benefits based on the chosen retirement age. Considering life expectancy, plan for a retirement that could span 15 to 20 years or longer.

11.       Create a retirement budget: Estimate your post-retirement expenses, including housing costs, daily living expenses, healthcare, and long-term care. Account for potential changes in lifestyle, such as downsizing or relocating to a more affordable area.

12.       Explore long-term care options: Given that a significant portion of individuals aged 65 and older may require long-term care, discussing plans and potential costs with loved ones is essential. Incorporate these expenses into your retirement savings strategy.

13.       Match income and expenses: Calculate the income you expect to receive during retirement, including pensions, Social Security, and rental income. Compare this income with your projected expenses to determine how much you need to save for each year of retirement.

For professional advice on how to start investing call us today at 901-435-4250.

Recent Articles

Lets Talk >