Welcome to NerdWallet’s Smart Money podcast. Here we answer real-world money questions.
This episode continues our series on managing your money in 2023 and includes a discussion on managing uncertainty in the New Year.
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Uncertainty is inevitable in all aspects of your life — personal, professional, and global. Understanding the risks associated with uncertainty and accepting it can help you build your financial resilience.
Consider whether your job is at risk due to an economic downturn. Also, consider how difficult it might be to manage your debt and how well you can manage inflation. Consider what you can do in order to overcome these obstacles. Some people might try to save more each month. An extra little cash in the bank can help with emergencies. Some people might look for ways to reduce their debt, such as debt consolidation or consulting a nonprofit credit counselor. Also, make sure to review your insurance policies to ensure that you have adequate coverage.
Remember that you’re not the only one. You can strengthen your relationships with friends, neighbors, and the entire community. This will allow you to support each other in difficult times. This assistance can come in many forms. Sometimes, it is as easy as a simple phone call. If you are able to get power, but theirs is damaged by a storm, you may want to invite neighbors into your house. You can also use services such as 211 to connect with local assistance in times of need.
Be aware of your unique risks and then consider how you can overcome them.
Connect with your community: Build strong relationships with your family, friends and community members to support each other through difficult times.
You must be flexible. It’s inevitable that you will face challenges. You can overcome any challenges in your financial and personal lives by building resilience.
Learn more about managing your money with NerdWallet:
Sean Pyles: This is the NerdWallet Smart Money Podcast. We welcome you to send us your money questions, and we will answer them with the help our brilliant Nerds. Sean Pyles is my name.
Liz Weston: And I’m Liz Weston. For more information, please call or text the Nerd Hotline at 901-730-6370. That’s 901-730-NERD. You can email us at [email protected]
Sean Pyles: Subscribe wherever you have your podcast to receive new episodes every Monday. If you enjoy what you hear, please give us a rating and share it with your friends.
Liz and I continue our series on managing your money in 2023. This time, Sara Rathner joins us as our co-host to discuss how to manage your finances during uncertain times. Sara, welcome back to Smart Money.
Sara Rathner: Thank you. We are always glad to be there.
Sean Pyles: We’re here to help you navigate, even if the topic may seem a bit scary and grim. Because there is so much happening, I’d like to begin by looking at the current moment. The fourth year of the ongoing pandemic is about to begin. Although inflation has been slowing recently, it is still a huge problem for many people. Also, we may be in recession. It seems that instability is the new normal. It’s important to remember that every day brings new surprises, and we have to find a way to deal with them.
Sara Rathner, Yes, it is possible for the world to be unstable, but your home and family are stable at this moment. While the world appears to be calm, I’m not sure why, it seems that things are very hectic for you. It doesn’t matter what’s happening outside. But it can have an impact on you.
Sean Pyles: Yes. However, I believe people should be able to sort through the noise and find their own version uncertainty. Are they at risk of job instability if we go into recession? Is it possible that they are in a difficult relationship which could have serious financial consequences. Or is inflation really hitting them hard? Many people are also worried about climate change and political instability. When there is so much happening, it can be really helpful to identify the risks you face and what’s causing your anxiety. This will help you take control of your emotions and find a way forward.
Liz Weston: Yes, as you said earlier, there will always be something. The idea that there will ever truly be peace and tranquility is kind of, yes, not going to happen. We should talk about past trauma and financial uncertainty. Because losses can multiply in this way. It’s possible to have more trauma if you’ve had past experiences with money. This can impact how you decide what to do with your money.
Sara Rathner: Uncertainty can also occur while you are making other plans. Some things take years to achieve, such as building your career, saving for a downpayment, or reaching a major savings goal. While you work towards these goals, there will be uncertainty. However, you can keep moving forward. Your path doesn’t have to be straight. It is possible to have many fits and stops and change your direction at any time. It’s important to remember that your long-term goals are important. Are they designed in a way that allows you to stick with them, even in difficult times?
Sean Pyles: Yes. One of the best things you can do to overcome all that life throws at you, good and bad, and to build your personal resilience, both financially and emotionally, is to be resilient. Resilience can be described as the ability to overcome setbacks and to quickly recover from them.
Sara Rathner says: Saving money is a huge thing. You just need to have it there in case of an unexpected, costly event. This can make you more resilient as you will know that if your car breaks down unexpectedly, you have the money. You have so many options when it comes to throwing money at problems.
To have funds available for unexpected events, one of my favorite things to do is to create savings buckets. Online high-yield savings accounts are what I use, not literal buckets of money. You can open them in a matter of minutes and have multiple savings accounts. You may be able to divide up an account into multiple savings goals. It doesn’t matter how you arrange it. If you have a goal in mind, you can simply give your accounts a name. It is really helpful to know that you have $1,500 for vet bills, and this amount for your car. This way, if something does happen, you know where to go.
Sean Pyles: Yes. Setting up direct deposits for these savings buckets is a great way to automate savings. This way, you can say, “OK, every monthly I have 200 dollars going into my car fund.” This will allow you to pay for gas and any other repairs you may need.
Sara, I agree that saving money is essential. Because last year, the consumer savings rate fell off a cliff, I am a little worried about saving. The personal savings rate of Americans was 2.3% in October 2022. This means that people were saving only 2% of their disposable income. This was down from 7% the year before and 14% for 2020. Credit card debt also grew. It was up 15% year-over-year in November 2022. This is not surprising considering inflation and the fact more people are traveling around the world. However, it is concerning. Listeners, if you are in this position, I suggest that you take a look at your finances to see if there is a way to reverse it before it spirals into a full-blown debt spiral.
Liz Weston, That is great advice. You also mentioned debt. It is extremely important to pay down your debt. While it doesn’t have to be your top priority, if you have high-rate debt such as payday loans, credit cards, or other high-interest debts, that’s something you should look into and work out. If you can find a way of paying it off, that’s great. Talking to a credit counselor, or a bankruptcy attorney is a good idea.
Sean Pyles: Yes. We’ve discussed in the past how debt can be a very useful tool in certain ways. As the Fed has raised interest rates over the last year, I have been emphasizing to everyone who will listen, which is my podcast audience as well as my friends, how important it is to pay off credit card debt. It’s becoming more expensive each time. It’s just not fair that people have to put so much money into interest.
Liz Weston: Yeah.
Sara Rathner: NerdWallet’s last-year household debt study found that an average household with revolving card debt had $7,000 and was paying around $1,000 per year in interest. You can think of all the other bills that you could pay with just a thousand dollars per year. This is basically how much electricity I have to pay for the year. It’s amazing to be able pay this without having to funnel it into debt. Imagine how productive your money will be if it doesn’t go towards interest and instead goes to something that serves you.
It is not easy. In a world where everything is more expensive, it can be difficult to stay out of debt. My life hasn’t changed, although my checking account has felt a little lighter lately. Although the items I purchase are similar, not all of them cost more. It can be difficult to save money or pay down debt when you don’t have enough.
Sean Pyles: Yes. Sean Pyles: Yes. I believe that is why it is important to recognize that debt is not a personal failing. People are not reckless, at least not often. It’s true that inflation has pushed up the cost of living and wages haven’t kept pace with it. Sometimes, you will have to take out debt in order to make ends meet.
Sara Rathner says: Yes, unexpected expenses are a major cause of debt, especially medical bills. It’s not your fault. You have to visit the hospital if you need to see a doctor. It is very disheartening to see how many people end up in this debt cycle due to an injury or illness. It’s not a sign of weakness if it happens to you. It’s just life happening. You do your best in a difficult situation.
Liz Weston: Speaking of life happening, I’d like to suggest that you check your insurance coverage right away. Because that’s one of the first things that comes up when we think about inflation. Take your auto insurance. If you haven’t noticed that your premiums have gone up, you might want to take a look at the latest bill. The reason is that cars are becoming more expensive, repairs are more costly, labor’s getting harder to find, and many companies will offer higher premiums for loyal customers. This seems completely absurd, but it’s the way insurance works. They know that you aren’t shopping around so they will pass on any increase. It’s a good time to look into whether you can get a better auto insurance deal.
Another type of insurance is homeowner’s insurance. In this instance, your premiums may not have been increasing, but your coverage might be falling behind inflation due to rising building costs. Labor costs are also higher. Unfortunately, the software used by insurers to determine how much insurance you need may be a bit flawed. It is not uncommon for people to be underinsured.
Amy Bach, who runs United Policyholders as a consumer advocate, said that two-thirds (or more) of her clients are underinsured. When something happens, they don’t have enough money to rebuild their home. You should definitely have a look. One of the best ways to find someone who is building a house within your area, or ask a local builder how much it usually costs to build a house. Compare this to the coverage you have and you may need to ask your insurer to increase it.
Sara Rathner: I was speaking to someone recently about something I was writing and they also mentioned umbrella insurance. I think this is something that gets overlooked a lot. Everyone talks about things such as auto insurance policies, homeowners, and renters. These policies already include umbrella insurance.
Although it is not expensive, it will protect you in the unlikely event that you are held responsible for paying someone else. You could end up paying hundreds of thousands of dollars more than you have insurance. A typical umbrella policy may cover you for an extra million dollars over what you have. If you host a party, and someone falls on your property and injures their ankle, you might need to pay the medical bills. This can help you to protect your assets as you don’t need to spend your savings to pay for the outcome of a lawsuit.
Liz Weston: Also renters insurance. You might not be aware of this, but your landlord is protected for your apartment if it burns down. However, you are not covered for your personal property. Renters insurance is usually quite affordable. It is a great way to protect your stuff.
Sara Rathner The best thing about homeowners and renters insurance is that you can bring your stuff along when you travel.
Liz Weston Ah, yes, that’s a good point.
Sara Rathner: Let’s suppose you rent a car, and you take your laptop along. Your homeowners or renters policy may pay you some money to replace the laptop.
Sean Pyles: Very nice. We’ve been discussing things people can do to increase their resilience and ability weather difficulties. But it’s important to also encourage people to reach out to others and help them. By that, I mean to focus on their local community. This will help them find purpose and be able help others. If the power goes out but your neighbor still has it, you will be able tap into that network of people who can help you. You can help them, and vice versa. We are not isolated individuals, as it sometimes feels. It is important to support each other.
Sara Rathner This literally happened on my block.
Sean Pyles : Really??
Sara Rathner: It seems like the power lines are so arranged that half of my block is on one side and half on the other. Half of our block lost power, and my house was the dividing line. Our neighbor next door did not have power so we had power. It was now the middle of our work day. In our dining room, we created a small co-working space.
Sean Pyles It’s so nice.
Liz Weston Wow!
Sara Rathner: My neighbors lost Wi Fi and had to work. One of them came over with his rice cooker, and began cooking dinner in our kitchen.
Liz Weston How?
Sara Rathner: These young children didn’t get what it meant to wait for dinner if there wasn’t power. This is where it’s really important to know your neighbors and have people in your neighborhood who can help you.
Yes, I can attest to the power and influence of community. You need sugar, no matter how small or large. Literally, I live in a block where you can ask your neighbor for a cup. It is great. Even if you need just emotional support. It’s just a matter of having someone down the street that knows that you have something going on that is really difficult. They’ll check in with your situation and find out what’s happening. They will offer their support in any way they can. This is so important when you are going through difficult times.
Liz Weston: Yes. I read some statistics and realized that people are spending more time alone now than they did before the pandemic. Even though there has been some improvement in many areas. Even for the most dedicated introverts, there is a limit on how much you can spend alone. To make sure I am out and about, I try to make it a point of making lunch dates with others and getting involved in my community.
Sean Pyles: Yes, relationships are hard work. You have to make sure you strengthen the bonds you already have. They can become weaker over time which can make it difficult to have that special lunch. For me, it was setting up a Zoom cocktail hour with friends across the country and reconnecting.
Liz Weston I like that.
Sean Pyles: It is important to be aware of the resources available to you, beyond your personal connections. The number 211 is the best resource for people to know. It is an easy number that you can dial on your mobile phone. These numbers can be used to help you pay your bills and connect to mental health services. The new hotline 988 can be a great resource for anyone experiencing mental health problems.
Liz Weston You can also turn to if you are a member of any church, mosque, temple, or 12-step group.
Sara Rathner: Yeah. There are also ways to get free or low-cost financial support. If you are overwhelmed by debt and need help negotiating your debt, a non-profit credit counseling service can be very useful. An accredited financial counselor can also provide pro bono assistance. Findanafc.org offers free assistance. This program is available through corporate sponsorship. It might not be possible forever or permanently but it is, at least, still available as of today. It’s quick and can be extremely helpful if you just want to have a chat with someone. You might be able to suggest things you didn’t know about.
Sean Pyles : That’s great advice.
Liz Weston: Years ago, I had an amazing experience when we were going through the Great Recession. It was to simply walk through your Plan B. Talk about what you would do in the event of a real bottom.
At the time, I thought, “If my husband and me lose our jobs, what should we do next?” It turns out that we are extremely wealthy in family relationships and family well-being. Not everybody is, I understand. Just that realization of “Hey, this could be a good idea. This is possible. It was possible.” This gave me peace and calm to deal with any situation. It turned out that it wasn’t a terrible time. The Great Recession was not a problem for us. That exercise helped to ease the anxiety about the unknown.
Sean Pyles: I believe the bottom line is that although there will always be another thing that happens in your life, at a global, municipal, or personal level, there are always things that you can do to improve your financial situation or your overall life. There are also organizations and people that can help you get through this. It’s important to know who you can turn to for help, as you won’t be able to do this alone.
Liz Weston Just.
Sean Pyles: Now let’s move on to the take-out tips. Know yourself first. First, understand yourself. Then look at the ways you can overcome them.
Liz Weston: Next, tap your community. To help one another through difficult times, strengthen your relationships with others.
Sara Rathner: Be flexible. It’s inevitable that you will face challenges. However, building resilience in your financial and personal lives can help you get through any challenges that life may throw at you.
Liz Weston: That’s it for this episode. Have a money question? Call or text the Nerds at 901-730-6370 to ask your questions. That’s 901-730-NERD. You can email us at [email protected] and rate, review and follow us wherever you get this podcast.
Sean Pyles: Here’s a brief disclaimer. We are not investment or financial advisors. This information is for entertainment and general education purposes only and may not be applicable to your particular circumstances.
Liz: Weston: This podcast was produced by Sean Pyles, myself. Our audio was edited by Kaely Monahan. Jae Bratton created our show notes. A big thank you to all the NerdWallet copy staff for their assistance.