By Jay Shareef and Chris Rhoads
Federal employees are especially affected right now as the U.S. government faces the possibility of defaulting on its loan obligations as of June 1, 2023. Four billion dollars in federal salaries are payable on June 9. With no agreement in place to raise the debt ceiling, federal employees are left wondering if they’ll receive their pay and benefits or lose their pension or Social Security income temporarily. Adding to the insecurity, it’s believed that defaulting will push the country into a full-blown recession.
Regardless of how far away we are from a recession, or whether we’re in one right now, there is no reason you shouldn’t prepare yourself for the worst-case scenario and start protecting your family’s financial health. Whether you have to deal with inflation or layoffs, here are 5 tips to consider to make sure you shield your household in case of a downturn.
Assess Your Emergency Fund
Now is the time to ensure you have enough money set aside in your emergency fund to cover 3-6 months of necessary living expenses. This includes mortgage or rent, utilities, groceries, transportation, etc.
With all the uncertainty and expected layoffs, many experts have suggested maintaining a larger emergency fund, closer to 6-12 months of expenses. If you’re single, or your household only has one source of income, consider saving on the higher end of this scale to make sure you’re covered in the event of a job loss or reduction in income.
However much you save, be sure this money is held in a highly liquid account. It needs to be readily available and easily accessible, but it should also be in an account that offers a competitive interest rate so you don’t lose out on potential growth.
Track Your Expenses and Build a Budget
Many people don’t realize just how much they are spending until they are tasked with writing it down. Once you have a good idea of where you currently spend money, you can begin to build a budget around where you want your money to go. Some expenses will be non-negotiable (like utility bills), while others may have some room for cuts (eating out). Over time, your budget can be modified as needed so you are better prepared to withstand potential fluctuations in income.
Review Your Risk Management Strategy
Risk management is a great way to safeguard what you’ve already built. Unmanaged risk can mean the difference between maintaining an ample emergency fund or not having enough when you need it the most.
Review your insurance policies and verify adequate coverage levels are in place. This should include life, health, auto, and homeowners insurance at a minimum, but disability and long-term care coverage should be considered as well.
These risks are often overlooked and can be devastating to your household finances. Confirming adequate coverage now can save you time, money, and energy in the future.
Protect Your Investments
It’s common to feel worried when you see your investment values fall during a financial crisis, but should it be inevitable? By subscribing, without consideration, to the mantra of “buy and hold (no matter what),” you relegate your portfolio to the fluctuations of the market.
Now, many people make the mistake of selling near the bottom of a market downturn, staying on the sidelines during a good portion of the recovery, and then jumping back in closer to the top of the next upswing. By doing this, you are quite literally selling yourself short.
Alternatively, we could turn this on its head by selling near the top, staying in cash as the market searches out the bottom, then jumping in as the market gets ready for the upswing. Does that sound a little like “buy low, sell high”? And please don’t let anyone tell you it can’t be done!
It’s crucial that you maintain a level head and don’t get caught up in emotional investing, especially in times of economic uncertainty. Proper asset allocation and diversification are key factors that can help you along the way along with a dynamic, focused investment strategy that responds to current economic and market conditions.
In Summary
Proactive approaches are your best insurance policy in uncertain economic times. As we approach the deadline for whether or not Congress will vote to increase the debt ceiling, federal employees like you can take the steps above to better manage the U.S. government’s financial policies. In the meantime, consider investing in the G Fund if you’d like to have all or a portion of your TSP account completely shielded from loss. Investing in the G Fund means placing a higher priority on the stability of your assets rather than potential longer-term growth. This type of decision is best made with a trusted, experienced financial professional on your team.
Rely on a Professional
Sometimes the best thing you can do to prepare is to get a second opinion. Economic downturns are inevitable, but financial stress and uncertainty don’t have to be. At WealthFlow Financial, we work together to assess your needs and take a proactive approach to preparing for the future—whatever it may hold. Together, we can create growth from uncertainty. Reach out to us at (301) 798-5250 or email us at info@wealthflowfinancial.com to get started today.
About Jay
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at WealthFlow Financial. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. To learn more about Jay, connect with him on LinkedIn.
About Chris
Chris Rhoads is a co-founder and vice president of WealthFlow Financial. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. Chris has been married to his wife, Tia, since 2009 and they live in Frederick, MD, together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes about which he cares passionately. To learn more about Chris, connect with him on LinkedIn.