A recent survey commissioned by the financial services company Beyond Finance asked 2,000 Americans how they feel about their finances. Only 13% said they feel “very good,” while another 28% reported feeling “somewhat good.” That leaves 59% feeling not so great.
That sentiment isn’t surprising, given the financial uncertainties created by President Donald Trump’s on-again, off-again tariffs. It’s difficult (even for the experts) to know what to expect next — and the stock market certainly does not like uncertainty.
Whether you’re just starting out in your career and your retirement savings are modest or you’ve been financially prepared for retirement for years, history has taught investors ways to protect their nest egg (regardless of its size). Here are three suggestions on how to navigate the recent financial turbulence.
1. Build up your cash reserves
If you’re not yet retired, experts suggest saving enough in an emergency fund to cover three to six months’ worth of bills. For example, if your monthly bills total $3,000, aim for $9,000 to $18,000 in easily accessible savings (in a high-yield savings account or short-term CD) to cover you if you experience a job loss, an unexpected medical event, or other “surprise” expense. If saving enough to cover your bills for three to six months seems achievable, you may want to consider saving even more. Once you’ve met the six-month goal, aim for nine months.
If you’re retired, you know how much an unpredictable market can rain on your parade. As storm clouds approach, there’s nothing better than having cash set aside for living expenses. Not only does cash provide an emotional cushion, but having enough put away to replace two years’ worth of investment withdrawals also means not having to dip into your retirement funds to pay everyday expenses.
Imagine you’re retired and receive a pension or Social Security benefits. You also draw $3,000 per month from a retirement account to cover the rest of your bills and give you spending money.
A good goal would be to have $72,000 in an interest-bearing savings account or in multiple staggered short-term CD accounts that you can easily access as needed ($3,000 x 24 months = $72,000). A cash reserve allows you to leave money in your retirement account when values are low.
While a dropping stock market can feel scary, it’s when values are low that the best investments can be picked up at a bargain price. Then, as the market recovers, your portfolio is in a position to come back stronger than ever.
Image source: Getty Images.
2. Treat it like a recession
There’s no denying current market volatility as the market keeps its ear to the ground, waiting for the next step in what seems to be a developing tariff war. While the S&P 500 is more volatile over the past few months, it hasn’t hit bear market territory for long enough to qualify just yet (it’s currently off about 10% from recent highs). Still, it did get dangerously close.
The market is down largely on investor (and expert) concerns that the tariff war will lead to a recession as soon as later this year.
One way to manage your spending during this tariff uncertainty is to start making decisions now as if you were in the middle of a recession. For example, if you have been putting money away for a nice vacation, consider postponing it until the economy is less uncertain. Or, shorten it by a couple of days and put the savings in your emergency fund. If you’re ready to schedule a home renovation project or buy a new vehicle, consider whether those significant purchases can be put off for now.
As discouraging as it can be to postpone something you’ve been looking forward to, keep in mind that the average recession lasts around 10 months. The next recession may be a bit longer or shorter, but the point is, it won’t last forever.
Nothing says you have to go into full lockdown mode and climb into an “economic” bomb shelter, but do watch your money closer than you otherwise might.
3. Consider making necessary purchases sooner rather than later
Granted, this point may seem to contradict the previous one, but once it becomes clear that tariffs will take effect, the smart move may be to make necessary purchases that will definitely be affected by tariffs before the tariffs go into effect. Let’s say your refrigerator has been making some weird noises in the past year, you know efforts to repair it won’t be worthwhile, and you’re fairly certain it’s nearing the end of its life. You’ve been casually looking at new models, but haven’t made the purchase yet. Given the tariffs on steel and aluminum already in effect, appliances such as refrigerators and washing machines are expected to see a price increase of nearly 20%. If the refrigerator you want was priced around $1,500, you can expect to pay closer to $1,800 very soon on new fridges being made now. But the ones already in the stores were likely there before the tariffs went into effect.
However, it’s not just appliances. Depending on where the president lands on tariffs against China, the cost of a laptop is predicted to rise by 46%, smartphones by 26%, and video game consoles by 40%. Although the picture is not yet entirely clear, experts believe the country will also experience price increases on clothing, shoes, food, tech, toys, wine, coffee, and cars. Products already here might not be affected, but new ones being shipped here now definitely will.
What history has taught us about tariffs
No one can claim to know the future, but we can look to history for an idea of what to expect. In 1930, the Smoot-Hawley Tariff Act led to retaliatory measures from trading partners. By 1933, U.S. exports had dropped 61%, significantly adding to the pain of the Great Depression. And as recently as 2002, a steel tariff led to European countermeasures against American exports, resulting in job losses across a wide range of industries that relied on steel.
While President Trump’s tariff war may not end so dramatically or lead to such dire consequences, it’s important to acknowledge that tariffs are already resulting in higher prices for U.S. consumers. According to the Tax Foundation, a think tank that publishes research on American tax policies, tariffs will likely result in a tax increase of $1,243 for the average U.S. household.
If there’s nothing that requires replacement (like a dying refrigerator), go into preservation mode by treating the current economic situation as if it were a recession. If you must replace something, consider making the move before tariffs lead to higher prices, and then move into preservation mode. It’s all about getting through all this “will they or won’t they” tariff drama with your finances intact.
