Illustration by Evangelia

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If you have some savings and you’re just keeping it as cash in your checkings account, then this is for you. Money sitting in an account and earning no interest will lose its value over time because of inflation - namely the prices of things rising over time. The same amount of money in your savings will be able to buy you less things. At the time of writing this, the inflation rate is 8.6%,  the cost of living is rapidly rising, and there is a risk of a potential recession. It’s important more than ever to protect your savings and make sure you are in the best financial position to get through the current climate. 

Your plan of action

This is a great time to take a look at your finances and plan out some things. The order of business is:

1. Build up your emergency fund or as some people like to call it, the fuck-off fund. Now more than ever we can appreciate the need for a secure pot of money. The rule of thumb is 3 to 6 months of covering your expenses, assuming you didn't have a job or are looking for one. But if you’re worried about getting laid off then it’s better to save for at least 12 months. This money should be kept in an easy-access savings account and you can have a look at the best saving rates here.‍
2. Minimize high-interest debt. See if you can negotiate a better rate with your credit card provider if you have a good history of on-time payments or switch to a low-interest card. You can also consolidate your debt to minimize your monthly payments or consider refinancing your loan if you’re offered a better interest rate.‍
3. Buy an investment property. If a recession does hit and home values drop there might be an opportunity to buy an investment property if you have enough saved. You could rent it out and earn passive income while you ride out of the recession. ‍
4. Put your money in I Bonds. I Bonds are short for inflation-adjusted bonds and are a great low-risk option if you can afford to lock up your money for at least a year. Right now, I Bonds are paying an annual rate of 9.62 percent through October and you can defer paying taxes on the interest you earn until you cash them out. There are a few restrictions to keep in mind though - you have an annual limit of $10,000 and often have cash withdrawal limitations up to 5 years. ‍
5. Investing. For the money that you can put away for a longer amount of time and let grow, you really should be investing it. Investing is not gambling and with patience the market brings returns. As long as you’re not putting your emergency funds here and you can wait out any downturns in the market, in the long run, the stock market will yield much higher returns. Since its inception in 1926, the S&P 500 which tracks the 500 biggest stocks in the US, on average returns 10% a year.

1. If you know a little bit about the market already and want to select stocks yourself then get an app like Robinhood, SoFi or Public to open a trading account and buy stocks freely. You might want to consider buying recession-friendly sectors such as consumer staples, utilities, and health care. Historically, however, active investors don’t over-perform the market so even if you know about and follow stocks, it's not always the best option.
2. The best solution in my humble opinion, or if you just don’t want to think about what stocks to invest in, is to sign up for a robo-advisor or wealth management platform that will do the work for you, for free or a small fee (0.25% is the lowest).  In order of the lowest fees I’d recommend SoFi, Betterment, and Wealthfront. 

That's it. A bit of planning and your money will be working for you!

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