At the beginning of 2023, the Wall Street Journal asked 70 economists to rate the chances of a recession in the next year — and the average answer was 63%. However, the looming recession economists forecasted didn’t happen. In fact, the economy grew by 3.1%, faster than the average for the five years leading up to the pandemic. While economist predictions can be helpful, they can’t completely predict the future. 

No matter the state of the economy, organizing and safeguarding your finances is probably one of the best things you can do for yourself or your family. Here are four tips to get started:

1. Build an emergency fund.

Did you know nearly 50% of Americans can’t afford to cover a $1,000 emergency? That’s why building an emergency fund is important to help pay for large or unexpected expenses.  Without savings, even a small emergency like car repairs or a broken water heater can potentially put you into debt.

Where do you begin?

• Most financial experts recommend building up a cash fund equal to three to six months of expenses. However, if you’re paying off debt, it’s important to prioritize your monthly bills.
• Some saving methods like the Envelope Savings System or cash stuffing allow you to manage your budget better, create savings goals, cut costs, and identify extra funds to deposit into your emergency savings.
• You should open a separate savings account designated for emergency funds. A high-yield savings account offers compound interest, which means you earn money on what you put in, including the interest.

For more ways to start building your emergency savings account, read “Easy Tips for Building an Emergency Savings Account—And Why You Need One” at efirstbankblog.com.

2. Avoid unnecessary debt.

The best thing you can do to set yourself up for success is to avoid taking on debt as much as possible. During economic downturns, debt may be more expensive due to increased interest rates, which can decrease your access to cash. In the worst-case scenario, if you lose your job and don’t have an emergency fund saved, you may have to use credit for essential expenses like rent, utilities, or groceries.

That said, starting an emergency fund will help eliminate the need to take on additional debt. If you’re looking to pay down existing debt, the snowball method is one commonly used repayment strategy where you prioritize tackling your smallest loan or credit card balances before moving on to the larger ones.

3. Know your net worth and business worth.

Your net worth provides a snapshot of your financial situation and can be used as a financial report card. If you calculate your net worth today, you will find the total sum of everything you own and what you owe. In other words, it provides a nice summary of your assets and debts or liabilities.

It’s important to know your net worth will fluctuate. Knowing where you stand financially allows you to make mindful purchases or decisions to meet your financial goals. Similarly, for business owners, understanding your business worth can help you plan for the future. The process called a business valuation will provide a baseline assessment of your assets and the current condition of your business.

4. Consult an advisor.

A financial advisor can be critical in helping you hone in on your goals and map out a way to achieve them. Whether you’re starting to invest, buying real estate, saving for an emergency, retirement, or something else, a financial advisor can create a tangible plan to meet your goals. There are many types of financial advisors, so do your research and find the one who has the expertise related to what you want to achieve.

The bottom line.

While economic forecasting can be used as a tool to help predict the economy’s future, it is not a perfect science. You can take charge of your finances, control how you navigate the economy, and prepare for the ebbs and flows.

For more resources, visit the Savings Tips page at efirstbankblog.com.

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