The economy is constantly in flux, with some changes happening gradually and others taking place suddenly and dramatically. The economy, globally and nationally, is impacted by various factors, including political events, technological advancements, global markets, and natural disasters, each affecting our financial stability and resilience as individuals.
With so many external factors impacting our financial well-being, it’s essential that we do what we can to remain financially resilient. This will prevent economic downturns from undermining our efforts to reach our financial goals and help us maintain financial stability regardless of what happens beyond our control.
This article will explore how different factors impact the economy and explore steps you can take to maintain your financial resilience.
Understanding Economic Influences
Many external factors influence our economy, and understanding them can help us better plan our finances for resilience in uncertain economic times. These four factors are some of the most significant influences, so let’s take a moment to better understand them.
Political Events
Elections, policy changes, and international relationships can all greatly impact how the economy performs, including employment rates, stock values, and the cost of goods. This was seen following the US 2024 presidential election. After Donald Trump won, the value of cryptocurrency stocks began to rise. The rise was linked to Trump’s loud support of this industry, indicating that these stocks will be more valuable when he takes office.
Technological Advancements
New advancements in major or traditional industries often have profound economic impacts. During the Industrial Revolution, productivity and output increased to unprecedented levels, leading to new industries, more job opportunities, and more availability of essentials like food. The period saw the economy grow and thrive; today, new advancements continue to influence the economy. The advent of cryptocurrencies and artificial intelligence has started to shift the economic landscape, disrupting traditional industries and altering the job market.
Global Markets
No economy exists in a vacuum, meaning one country’s economic wellness impacts other countries. A country’s performance, whether good or bad, can ripple through to the global and other national economies.
Natural Disasters
Natural disasters can disrupt economies in many ways. They can require more government spending to address issues that arise, disrupt supply chain systems, and be detrimental to essential infrastructure. Like the economies of different countries, natural disasters can have ripple effects throughout the economy, disrupting many different industries with a single event.
Steps to Stay Financially Resilient
Now that we know the significant factors that can impact the economy and our financial health, we can look at ways to mitigate their impacts at the individual level so that we can continue working towards our financial goals and enjoy our current way of life.
By following steps like these, we can still enjoy our favorite entertainment avenues, like gambling, without worrying about reaching our loftier financial goals, such as buying a home or retiring, when the economy is in a downward flux. Whether you want to set aside more cash for lotteries or slot games, poker, and sports betting (all of which can be done if you click here), it’s nice to continue a well-rounded lifestyle complete with our favorite things, regardless of the greater economy.
Build an Emergency Fund
Building an emergency savings fund is an important way to protect ourselves financially. It involves setting aside cash to use in the event of a job loss, medical emergency, or another situation where we need access to money. It’s a good rule of thumb to set aside enough money to cover three to six months of expenses, but this amount may vary depending on our comfort level. To make the most of emergency funds, keep them in a high-yield savings account to benefit from interest on savings while maintaining easy access to the fund when needed.
Diversify Investments
A diversified investment portfolio is one of the best ways to protect our investments from economic fluctuations. It follows the old adage of not keeping all your eggs in one basket. With a diversified investment portfolio, we have our money invested in different types of investments across various industries, like stocks and bonds. This will protect us if one industry takes a sudden downturn so that, ideally, we’ll still profit from our investments.
Reduce Debt
Reducing debt, particularly high-interest debt (like the kind we incur from using a credit card), can help ease our financial stress while increasing the amount we have at our disposal for saving and investing. Two key methods are used to reduce debt: the snowball method and the avalanche method. The first delivers small wins by tackling small debts first, while the second helps us reduce how much we owe by paying off our highest-interest debts first.
Create a Budget
A budget helps create financial stability by helping us ensure we’re not spending more than we’re bringing in. It can also be a powerful tool to help us cut expenses, realistically set and reach goals, and keep tabs on our financial health. To create a budget, we need to track our income and spending over at least a month and then use this as a tool to determine where to make changes in our money habits going forward.
Stay Informed
Staying informed about the economy and its many influences can help us better understand it and make better-informed decisions about our financial wellness. Following the news is one way to do this, but we can also turn to economic sources such as CNBC, the Wall Street Journal, MarketWatch, or The Economist.
Consult a Financial Advisor
Understanding finances and making major financial decisions can be intimidating and is a widespread source of stress for many Americans. This is where seeking help from a financial advisor can help. Financial advisors are well-versed in helping people reach their financial goals (and even helping to set them), informed about the market, and accredited to do their work. Speaking with one about financial questions or using one regularly to help manage finances can give us confidence, peace of mind, and financial resilience.
Conclusion
By building an emergency fund, diversifying our investments, reducing our debt, creating a budget, staying informed, and consulting a financial advisor, we help ourselves build financial resilience and gain peace of mind when coping with the economy’s fluctuations. With so many influences beyond our control, it makes sense to do everything possible to care for ourselves.
