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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
In this episode we continue our series about managing your money in 2023 with a discussion about managing uncertainty in the new year.
Check out this episode on any of these platforms:
Uncertainty — in your personal life, in the economy, in the world at large — is all but certain. Accepting that and understanding the particular risks you face due to uncertainty can help you strengthen your financial resilience.
Think about whether your job may be at risk in an economic downturn, if your debt is becoming difficult to manage or how well you’re positioned to manage the effects of inflation. Then consider what you can do to overcome these challenges. For some, that might mean trying to save more money each month. A little extra money in the bank can help you respond quickly when emergencies pop up. Others might want to find a way to make their debt more affordable, maybe through debt consolidation or talking with a nonprofit credit counselor. And take the time to look at your insurance policies to ensure you have enough coverage.
Also, realize that you aren’t alone. Take the time to strengthen your relationships with your friends, neighbors and community at large. That way you can help each other during challenging times. Such assistance can take many forms. Sometimes it can be as simple as a phone call. Other times, you might want to invite your neighbors into your home if you have power and theirs has gone out in a storm. Additionally, services like 211, which can connect you with local assistance, can help you in difficult times.
Know yourself: Understand the unique risks you face, then look at how to overcome them.
Tap your community: Strengthen your relationships with friends, family and your community to help each other get through hard times.
Be flexible: Challenges will come — it’s inevitable. Building resilience into your personal and financial lives can help you work through whatever life throws at you.
More about managing your money on NerdWallet:
Sean Pyles: Welcome to the NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius Nerds. I'm Sean Pyles.
Liz Weston: And I'm Liz Weston. To contact the Nerds, call or text us on the Nerd hotline at 901-730-6373. That's 901-730-NERD. Or email us at [email protected].
Sean Pyles: Follow us wherever you get your podcast to get new episodes in your feed every Monday. And if you like what you hear, please leave us a review and tell your friends.
This episode, Liz and I continue our series about managing your money in 2023. And this time around, we are joined by our regular co-hosting companion, Sara Rathner, to talk about how to manage your finances in uncertain times, which seems to be all of the time nowadays. So welcome back to Smart Money, Sara.
Sara Rathner: Thank you. Always glad to be here.
Sean Pyles: Even if the topic is maybe a little bit grim and scary, but hey, that's what we're here to help people navigate. I want to start by taking stock of our current moment because there's so much going on. We are about to enter the fourth year of the still-ongoing pandemic somehow. Inflation has slowed recently, which is awesome, but high prices are still hurting a lot of folks. We're also maybe in a recession. And on the whole, it just seems like instability is the new normal. I think it's important to realize that there's always going to be some new surprise, so we all have to figure out how to get through it, right?
Sara Rathner: Yeah, I mean, there might be instability in the world at large, but you are in a very stable moment within your own household or vice versa. The world seems to be relatively calm, which I don't know, that never happens anymore, but things for you are quite hectic. Whatever's going on outside, it can affect you or it might not, but it's really just important to respond to whatever's going on for your own life.
Sean Pyles: Yeah. At the same time, I think folks should wade through a lot of the noise that's going on and to find their own version of uncertainty. If we are maybe going into a recession, are they facing job instability? Are they maybe in a rocky relationship, which could have a lot of financial repercussions, or is inflation hitting people really hard? Also, a lot of folks are simply worried about political uncertainty and instability and climate change. So when there's so much going on, I think it's really beneficial to define the risks that you face specifically, and also what's just causing you anxiety; that can help you gain control over your feelings and also find a path forward.
Liz Weston: Yeah, and you mentioned earlier there's always going to be something, the idea that there will ever be perfect peace and calm it's kind of, yeah, not going to happen. But we should also talk a little bit about past trauma, past financial uncertainty, because in a way, losses can multiply. If you've had experiences in the past with money that are traumatizing, it could echo throughout your life and it could bring more trauma to your current situation, whether or not that's warranted. And that can affect how you make money decisions.
Sara Rathner: And also uncertainty happens while you're making other plans. There are some things that you work through in life that can take years to come to fruition, like building your career or hitting a major savings goal, like saving up for a down payment. Uncertainty is going to occur while you are working on these goals, moving along your path. And your path does not have to be linear, by the way. You can have different fits and starts and change directions whenever. And so it's just important to recognize that you have these long-term goals. And are they set up in such a way that you can stick to them even when times are tough?
Sean Pyles: Yeah. And one of the best ways to get through everything that you will experience in your life, both good and bad, is to focus on resilience and build up your own personal resilience in your life emotionally and also financially. Resilience is just the ability to withstand setbacks and the ability to recover, hopefully somewhat quickly, from the hardships that you face.
Sara Rathner: Yeah, a big thing is saving money and just having it available for when some unexpected, expensive thing happens. And that can help you feel very resilient, because you know if you need to repair your car unexpectedly, the money's just there. There's so much freedom that comes with being able to throw money at problems.
One of the things that I like to do to have funding available for these unexpected things is to set up savings buckets, so to speak. Not literal buckets with money, but I use online high-yield savings accounts. They can take just a couple minutes to open, so you could have a savings account for different purposes. In some cases the bank allows you to divvy up one account into multiple savings goals. So however you want to arrange it, just giving your accounts a name if you have a goal coming up, like you know you're going to need to replace your car or your savings for a vacation, or you have emergency savings for home repairs or pet medical bills or things like that. It's really nice to know like, "OK, I have $1,500 set aside for vet bills and I have this amount of money set aside for my car." And that way when something happens, you have the money to turn to.
Sean Pyles: Yeah. And setting up direct deposit for those savings buckets can be a really simple way to automate your savings and that way you know, "OK, every month I have 200 bucks going into my car cash fund." So that way you can cover gas or any repairs that you might need for your car, whatever it may be.
But I totally agree with you, Sara, that saving is so important. I'm a little concerned about savings right now because last year we saw the consumer savings rate fall off of a cliff. In October of 2022, Americans' personal savings rate was 2.3%, which really means that folks were only saving about 2% of their disposable income. That was down from around 7% a year before and 14% in 2020. And at the same time, credit card debt shot up. In November of 2022, it was up 15% year over year. And given inflation and the fact that a lot of folks are going out in the world more, this isn't entirely surprising, but it is worrying. So listeners, I would say if you find yourself in this situation, take a moment to look at your finances and see how you can hopefully reverse this pattern before it becomes a fully fledged debt spiral.
Liz Weston: That's good advice. And also you mentioned debt. Paying down debt is super important. It doesn't necessarily have to be a top priority all the time, but if you have expensive debt — if you have credit card debt, payday loans, any kind of high rate debt — that's definitely something to look at and figure out. I mean, if you can find a way to pay it off, great. If you need to talk to a credit counselor or a bankruptcy attorney, that's probably something to do earlier rather than later.
Sean Pyles: Yeah. And in the past, we've talked about how debt can be a really useful tool in some ways. But over the past year, as we've seen the Fed raise interest rates, I have been hammering home, to anyone who will listen to me, which I guess is the podcast audience and my friends and family, the importance of paying off credit card debt in particular because it's getting so much more expensive every time the Fed raises rates. And I just hate seeing people have to funnel so much money into interest alone.
Liz Weston: Yeah.
Sara Rathner: NerdWallet's household debt study from last year found that the average household with revolving credit card debt had around $7,000 in debt, and they were spending around a thousand dollars a year in interest. So you think about how many other bills you can pay with a thousand dollars a year. That's basically my entire year's worth of electricity in my house. And so to be able to pay that without having to just funnel it into my debt is incredibly freeing. But just imagine how much more productive your money can be when it's not going toward interest, when it's going towards something that actually serves you.
But it is hard. It is hard to stay out of debt at a time where things just cost more. I mean, I don't know about you, but my checking account has been feeling pretty light lately, and my life hasn't really changed. The things I buy are about the same, but just everything costs more. And it's so hard to have all that extra money available at the end of the month to pay down debt or build savings sometimes.
Sean Pyles: Yeah. And I think that's why it's important to acknowledge that debt isn't a personal failing. It's not like people are super reckless, at least most of the time. The fact is that wages have not really kept up with inflation, and living is super expensive. And so sometimes you have to go into debt if you really can't make ends meet.
Sara Rathner: Yeah, a lot of debt is caused by unexpected expenses, especially things like medical bills. And that's not your fault. If you have to go to the doctor, you have to go to the hospital, then you have to do it. And it is really disheartening how many people unfortunately end up in this debt spiral because of an illness or an injury, and I wish that was not the case. So if that's something that's happened to you, like you said, it's not a moral failing. It's life happening, and it's you doing the best you can in a bad situation.
Liz Weston: And speaking of life happening, here's a pitch to check out your insurance coverage right now, because that's not one of the things that comes to mind when we talk about inflation, typically. But just take your auto insurance, if you haven't noticed your premiums going up, maybe you should take a look at your latest bill because they have been. And the reason is cars are getting more expensive, repairs are getting more expensive, labor's getting more expensive, and a lot of companies will stick you with higher premiums if you're loyal. That seems absolutely backwards, but that's how insurance works. They know you're not shopping around, so they're going to pass on an increase. So now it'd be a really good time to take a look at if you can get a better deal with your auto insurance.
Homeowner's insurance is another one. And in this case, maybe your premiums haven't been going up, but maybe your coverage isn't keeping pace with inflation because building costs have just gone through the roof. Again, labor costs are higher. And unfortunately, the software that insurers use to tell you how much insurance you need is, shall we say, a little bit flawed. It tends to get people underinsured, which is unfortunate.
I was talking to Amy Bach, who runs the United Policyholders, as a consumer insurance advocate, and she says consistently two-thirds of the people that she sees are underinsured. They don't get enough money to rebuild their house when something happens to it. So definitely take a look. Actually, one of the easiest ways is to find somebody who's building a house in your neighborhood, or if you know a local builder, ask them the per square foot amount it typically costs to build a house in your neighborhood. Compare that to what you've got, and you probably need to ask your insurance company to boost your coverage.
Sara Rathner: Somebody I spoke to recently for something I'm writing also mentioned umbrella insurance, which I think kind of flies under the radar a lot of times. Everybody talks about things like an auto insurance policy, homeowners, renters. Umbrella insurance is an add-on to these existing policies.
It's not terribly expensive, but it can protect you in the event that basically you are liable to pay somebody else off and the dollar amount of liability exceeds what your existing insurance coverage will cover. So you can sometimes be stuck out of pocket with the remainder of the bill, which could be hundreds of thousands of dollars. And so oftentimes a typical umbrella policy might cover you for an additional million dollars on top of what you already have. So if you're hosting a party and somebody falls in your house and breaks their ankle and goes after you to cover their medical bills, or you're in a car accident and you're at fault, sometimes your insurance just doesn't cover you enough. And this can be a way to further protect your assets because you don't have to drain your savings to pay for the result of a lawsuit essentially.
Liz Weston: And also renters insurance. This is something you might not even know exists, but if your apartment burns down, your landlord is covered for the building, but not your stuff. So having some renters insurance is, it's generally pretty cheap. It's a really good way to protect the stuff that you have.
Sara Rathner: And what's nice about renters and homeowners insurance also is that it covers your stuff if you bring it along with you when you travel.
Liz Weston: Oh, yeah, good point.
Sara Rathner: So let's say you rent a car and you travel with your laptop because you're doing that whole business-leisure thing and you're a digital nomad and somebody breaks into your rental car and steals your laptop. Well, your renters or homeowners policy might kick you some money to cover the cost of replacing it.
Sean Pyles: Nice. So we've been talking a lot about things that people can do on their own to build up their own sense of resilience and ability to weather trouble, but it's also important for people to lean on others and find ways to help people around them. And by that I really mean focusing on their local community, because beyond just being able to get help when you need, it can help you find a sense of purpose, being able to assist others. But then at the same time, say the power goes out and your neighbor still has power, if you are close with them, you'll be able to tap that network of people that can help you. And vice versa, you'll be able to help them too, because we are not siloed individuals as much as sometimes it can feel like that in the society. It's really important to lean on each other.
Sara Rathner: That literally happened on my block.
Sean Pyles: Really?
Sara Rathner: I guess the power lines are structured in such a way that half my block is on one and half my block is on the other. We had a situation where half the block lost power and literally my house is the dividing line. So we still had power, but our next door neighbor did not. And so it was the middle of the work day. We ended up running a little mini co-working space out of our dining room.
Sean Pyles: That's so nice.
Liz Weston: Oh, that's wonderful.
Sara Rathner: My neighbors lost Wi-Fi and they had work to do. I mean, one of them even came over with his rice cooker and started cooking dinner in our kitchen for his kids because …
Liz Weston: What?
Sara Rathner: ... these young kids, they didn't understand what waiting for dinner meant if there was no power. So really that's where knowing your neighbors and having people in your community who can help you can really come in handy.
So yes, I can personally attest to the power of community. Whether you have just a physical need like you've lost power, you need a cup of sugar. Literally, I live on the kind of block where you could ask a neighbor for a cup of sugar and it is nice. Or even if you just need emotional support as well. Just having people down the street who might know that something's going on in your life that's really tough, they're going to check in with you, they're going to find out how you're doing. They're going to offer support in some way. It's so helpful when you're going through a difficult time.
Liz Weston: Yes. And I was reading some statistics that we are actually spending a lot more time alone than pre-pandemic, even though things have been loosening up in a lot of areas. And even for us diehard introverts, there's a limit to how much time you can spend just by yourself. For me, I'm making it a point to get out and make lunch dates with people and do more in my community just so that I'm out and about a little bit more.
Sean Pyles: Yeah, because relationships, all of them are work, and you have to put in some time and effort to reinforce the bonds that you have. Otherwise, they can shrivel up over time, which is sad, but it can be so rewarding when you do go out and have that lunch. Or for me, with my friends who live across the country, setting up a little Zoom cocktail hour and just reconnecting and having some actual face time.
Liz Weston: Oh, I like that.
Sean Pyles: And then beyond personal connections that you have, it can be good to know what resources are available to you. That resource for folks to know is 211, which is a number you can call on your cell phone. They are a service that can help you navigate things like paying bills or even getting connected to mental health services. And in that same vein, the new hotline 988 is a really great resource if you are having mental health struggles.
Liz Weston: If you happen to be a member of a church, a mosque, a temple, a 12-step group, whatever it is, that's another place that you could possibly turn to for support.
Sara Rathner: Yeah. And also there are ways to receive free or low-cost support from financial professionals. Nonprofit credit counseling services can be very helpful if you're overwhelmed by your debt and you want just a third party to take a look at your situation and give you some guidance, help you rethink your budget, help you negotiate your debt. You can also get pro bono help from an accredited financial counselor. If you go to Findanafc.org, there is free help available. It's through a corporate sponsorship so this program might not be available forever or permanently, but it is at least as far as I check today, still available. And that can be very helpful if you would like a session with somebody just to get their guidance, but it's pretty quick. And maybe they can suggest some things that you might not have thought of yourself.
Sean Pyles: Yeah, that's good advice.
Liz Weston: I had an experience many years ago when we were entering the Great Recession that turned out to be incredibly helpful, and that was simply walk through your plan B. Think about and talk about what you would do if the bottom really drops out.
So I was thinking at the time, if both my husband and I lost our jobs, what would we do next? And it turns out we are very rich in family relationships and family health. Not everybody is, I understand. But just that exercise of realizing, "Hey, we could move in with this family member. We could do this. We could do that," just gave me a lot of peace and calm in dealing with whatever was coming up. And it turned out for us, it actually was not a bad time at all. We got through the Great Recession just fine. But that exercise really helped deal with the anxiety of the unknown.
Sean Pyles: Yeah, I think the bottom line of the conversation is that, one, there's always going to be something else that happens, whether it's at a global or even municipal level in your life or to you personally, but that there is almost always something that you can do personally to help shore up your finances or your life in general. And then even beyond that, there are people and organizations that can help you weather this, too. Because you can't always go through these things alone, it's really important to know who can help you.
Liz Weston: Exactly.
Sean Pyles: And now let's get on to our takeaway tips. First up, know yourself. Understand the unique risks that you face, then look at how to overcome them.
Liz Weston: Next, tap your community. Strengthen your relationships with those around you to help each other get through hard times.
Sara Rathner: Finally, be flexible. Challenges will come, it's inevitable. But building resilience into your personal and financial lives can help you work through whatever life throws at you.
Liz Weston: And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. You can also email us at [email protected]. And remember to follow, rate and review us wherever you're getting this podcast.
Sean Pyles: And here is our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz: Weston: This episode was produced by Sean Pyles and myself. Kaely Monahan edited our audio. Jae Bratton wrote our show notes, and a big thank you to the wonderful people on the NerdWallet copy desk for all their help.
Sara Rathner: And with that said, until next time, turn to the Nerds.