When the Economy is No Joke

If you're starting to find the jokes about the economy less than funny - "Inflation is so high, rapper 50 Cent has changed his name to 75 Cent" - you might be worrying about how you and your personal finances will fare if the economy continues a downturn. The good news is that by thinking about economic uncertainty, you're already on the right path.

Economists have told us for years that we should try to save about 3 to 6 months' worth of our wages so that when the economy is down and money is tight, we won't have to turn to credit. Using credit as a safety net is a mistake that often takes people years to reverse. So, preparing an emergency fund now, before the economy worsens, is the most logical plan. But logical doesn't mean easy. And if you haven't started saving, you aren't alone. In fact, nearly one-third of Americans have less than three months of living expenses in savings, and almost one-quarter have no emergency fund, according to a survey by Bankrate.

An emergency fund is crucial when you prepare for a downturn in the economy. In a nutshell, an emergency fund is money you've saved up for the sole purpose of helping you get through your day-to-day living during financial hardships. And when it comes to deciding where to store your emergency fund, it's important to make sure the money is easily accessible in case you need it for unplanned expenses such as a medical bill or household repair. Your primary goal should be to keep your money fluid and safe.

A high-yield savings account gives you easy access to the funds while also earning some interest. If you already have a savings account, establishing a new one, just for emergencies is advised. A second account not only will help you resist the temptation to dig into emergency funds, but it will also help you keep your money organized and prioritized, without disrupting your previous savings goals. Some experts advise you take the three-bucket approach to saving - putting emergency savings into three different accounts and accessing them in this order, if you need to: a savings account, a money market account, and a one-year certificate of deposit.

Meanwhile, like it or not, it might be time to think about ways to prepare for a financial crisis. Yes, you might need to start living a little bit more frugally. You can start cutting costs by delaying a major purchase or getting into bargain shopping. (Thrifting is cool, right?) You may want to think about chopping one fixed cost from your monthly budget. (Do you really need to subscribe to all those streaming services?) And yes, like it or not, 'tis the season to be conservative. (Homemade gifts for everyone!)

Regardless of what is on the financial horizon - don't lose your sense of humor over it. Prepare, don't panic. And hopefully, you'll have the last laugh.

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