We are all paying more for pretty much everything. If you want to buy a house, mortgage rates are up over 70% in the last six months, and the S&P 500, the primary metric for the ‘stock market’, recently entered a bear market (down 20% from its peak closing price). Many people are being squeezed by food and fuel prices, which are helping drive costs up for everyone.
It Looks Ugly Out There!
Unfortunately, when you dig deeper into economic statistics and surveys, the economy may be in worse shape than it appears right now. Consumer sentiment is at all-time lows, even below the Great Financial Crisis low in 2008. Real wages (inflation adjusted) are declining and have been since the middle of 2020. Job losses (weekly or 4-week average) are starting to trend upward while companies have started to announce hiring freezes and layoffs. Sentiment is declining among manufacturing companies. Inventories are growing at retailers due to a shift in buying and a drop in discretionary income.
What You Need to Do
Right now, there are significant risks in the economy. The most important thing everyone should do is financially protect yourself and your family. If you don’t have an emergency fund, start saving now! If you already have an emergency fund, it might be a good time to consider putting extra money towards it due to the increased risks around the economy. Look to see where you can cut spending on wants and limit spending to needs until you get some savings built up.
What is an Emergency Fund?
An emergency fund is exactly what it sounds like. It is money set aside for emergencies. Emergencies can come from anything: losing a job, an emergent house repair, replacing a broken appliance, a major car repair, medical bills, or any other major costs that are unexpected. An emergency fund should be the first place you save, and your minimum emergency fund goal should be enough to cover 3 months of expenses, including housing, utilities, food, monthly loan payments, and insurance. While you are paying off your debt, you should also be building an emergency fund. If you are debt free, you should be building or already have an emergency fund. Your emergency fund should also help ease your financial stress. If three months isn’t enough to make you feel comfortable, save to have a larger emergency fund. However, 12 months of expenses is probably the maximum amount you should need in an emergency fund.
IMPORTANT: Emergency funds should be kept in low-risk savings accounts or certificates of deposit (CDs). Emergency funds are meant to be a safe financial cushion, and that risk of loss should be reduced as much as possible. Even with inflation at 40-year highs, your emergency fund should still not be invested in riskier assets (so NO stocks, bonds or crypto currencies!)
Sign Up for the Weekly Off Ramp! And send in a topic you want to hear about on the Contact Us page. Follow me on Twitter 
and Facebook 