How to Manage Your Money Effectively During Economic Uncertainty

Uncertainty in the economy makes it even more important to know exactly where your money is going. A well-structured budget helps you prioritise essential expenses, cut unnecessary costs, and ensure that you're saving enough. If your income changes or costs rise, a budget gives you the flexibility to adjust accordingly.

Yes, we understand that the idea of a budget can be eye-rolling, but tracking your spending doesn’t mean eliminating everything fun from your life. It’s not designed to make you cut back necessarily, but simply means making sure that your money is being used in ways that align with your long-term goals.

Economic downturns can bring a higher chance of an emergency, from job losses to a jump in costs for a necessary area of spending. An emergency fund is your financial cushion against these surprises, preventing you from having to rely on credit or forcing you to sell investments when markets are down.

Ideally, you should aim to have three to six months’ worth of expenses set aside in an easily accessible savings account.

If you don’t have an emergency fund yet, start building one today. Even small contributions each month will help. If you’re someone who’s always been asset rich but cash poor, you’ll be amazed at the mental benefits that come with having a cash safety net in place.

During market downturns, it’s tempting to make big changes to your investment strategy. Some people try to time the market by selling assets and then buying back in, shifting portfolios dramatically, or holding everything in cash. These moves almost always do more harm than good.

Diversification is important, but panic selling is not a strategy. If your portfolio is already well-diversified, there is no need to make changes just because of short-term economic conditions. Selling when markets drop locks in losses and increases the chance that you’ll miss out on the recovery, while those who stay invested benefit from the eventual bounce.

Bank of America conducted research which showed just how impactful this can be. Going back to 1930, investors who had remained invested in the S&P 500 through to 2021 would have experienced a return of over 27,000%. But if those same investors had missed just the ten best days in each decade, that total return drops to 28%.

 While you may not invest for 90 years, the concept remains the same, and investing should always be approached with a long-term perspective. Markets have historically always recovered, and history has proven that time in the market is far more important than trying to predict short-term movements.

A big part of being able to do this is to focus on your long-term goals. Short-term volatility should not derail your long-term financial plan, and keeping your eye on the future can help put volatility into perspective.

Whether you’re investing for retirement, property, or wealth preservation, economic downturns are just part of the journey. What matters is that you stay committed to your goals and continue making consistent contributions to your investments.

And in fact, if you’re investing regularly you’re actually benefiting from market downturns. When markets fall, you’re buying assets at lower prices, which increases your long-term returns. This approach, known as pound-cost averaging, ensures that you aren’t trying to time the market but instead taking advantage of lower prices when they occur.

High-interest debt is a risk at any time, but it can become an even bigger burden during economic uncertainty. Rising interest rates mean that borrowing becomes more expensive, increasing the cost of outstanding debt. This can be even more damaging if your income comes under pressure at the same time, through layoffs or a reduction in business income.

If possible, focus on paying down credit cards, loans, or any debts with high interest rates. Reducing outstanding balances not only improves financial security but also frees up cash flow for savings and investments.

For those with mortgages, now may be a good time to review refinancing options or ensure that repayments remain manageable if interest rates rise further.

It’s natural to be more cautious with spending when the economy is uncertain. However, there’s a balance between being sensible and cutting back too much. Completely stopping discretionary spending may feel like a responsible decision, but it’s not likely to be a realistic long-term option.

Instead, focus on spending intentionally. Consider delaying major purchases if necessary, but avoid making decisions based on fear. If your financial situation is stable, continuing to spend on essentials and experiences that bring value to your life is still important.

 Think of it like a diet. If you go too extreme and try to live on nothing but chicken and broccoli, you’re almost certainly going to fall off the wagon. But if you make some modest but sensible changes, you can improve your position while still enjoying your life.

Economic uncertainty is a reminder of the importance of having a solid estate plan in place. Reviewing wills, trusts, and inheritance tax planning ensures that your wealth is protected for future generations. This is especially important for those with cross-border assets or complex financial situations.

Reviewing beneficiary designations, ensuring life insurance policies are up to date, and speaking with an adviser about inheritance tax strategies can provide clarity that benefits the whole family.

Financial news can be overwhelming, especially during economic downturns. The headlines focus on market crashes, inflation fears, and recession warnings, which can create unnecessary anxiety. While it’s important to stay informed, constantly checking the news or watching daily stock market movements often leads to emotional decision-making.

Instead, focus on what you can control. Sticking to your long-term investment strategy, managing your spending, and continuing to build wealth over time will put you in the best position for the future.

Economic uncertainty can be unsettling, but history has shown that those who remain invested and stick to their financial plan come out ahead in the long run. Building an emergency fund, managing spending, paying down debt, and maintaining a diversified investment portfolio are all key steps in protecting your financial future.

 At Hoxton Wealth, we help investors create long-term financial strategies that stand the test of time. If you want to ensure your money is working for you, even in uncertain times, speak to our team today.