Cutting corners is the new mantra for countless households as the nation wrestles with high inflation, rising interest rates and growing layoffs. But even though the urge to save makes sense, chopping in the wrong places can cause more harm than good. That’s particularly true if a recession is short-lived and inflation comes back down to more normal levels soon. You could end up making short-term moves at the expense of your long-term financial goals.
“Yes, you need to start looking for places to cut, assuming your expenses have gone up, your income has gone down or both,” says Anne Lester, a retirement expert. “But rather than starting with the things you can afford to cut, think about what you have to keep doing.”
From saving for emergencies to spending on health care, here are five money moves you can’t afford to stop making, even in a recession.
1. Emergency savings
When budgets are tight, saving for emergencies tends to fall by the wayside. Money experts caution against draining these funds. Without any money in the bank, you may be forced in an emergency to rely on a high-interest credit card or take out an expensive loan, which could put you in a deeper hole down the road. “You want to make sure you’re always putting money into emergency savings, if possible,” says Chris Briscoe, a certified financial planner and vice president and director of financial planning at Girard. “Whether it’s $10, $20 or $30, you want to put away something to keep the good habit.”
Insurance gives you more than peace of mind; it protects you if something catastrophic occurs to your health, home or vehicle. Avoid the temptation to stop paying your health insurance premiums or skimp on your automobile or home insurance coverage. It can have very bad long-term consequences if something goes wrong. “Insurance is something critically important to maintain,” says Lester. “You want to maintain it to avoid something that can wipe you out financially.” If you do need to save, don’t cancel your coverage. Instead, consider shopping around for more affordable plans, increasing your deductible or reducing your coverage.