Last week has been eventful. As we all know, Russia has invaded Ukraine and the incoming news images look pretty scary. Apart from the complicated political situation the conflict also impacts the economy, as war always does.
Politics aren’t my strong suit, but I can help you with money related questions so that’s why I decided to write this article.
How does war impact the economy?
There is not a short and simple answer to this but I’ll try to explain.
Insecurity and connection
A military conflict always brings a lot of insecurity about the future into the world, and if there’s one thing the markets don’t like it’s insecurity. In our modern society we are very much connected, and the same goes for companies. If a company has trade relations in a conflicted area, a war will obviously have consequences.
A lot of industries struggled to survive and some didn’t quite make it. Now we are facing a new crisis. As consumers we will definitely feel this in our wallets.
For example: my hometown Antwerp is well known for its diamond trade. A whole lot of those diamonds are imported from Russia. With Europe announcing economic sanctions to punish Russia for the invasion, there is no question about those diamond traders being impacted.
Let me be clear: I am not discussing the right or wrong of these sanctions, this is not a page about politics. I merely want to explain to you how complicated this whole situation is and what is going on in the market.
War demands energy
The war also causes prices of gas and oil to surge, and those are a couple of the driving forces behind inflation. We are just coming out of a pandemic (that is: I sincerely hope we’re finally done now) that has left its marks on the economy. A lot of industries struggled to survive and some didn’t quite make it. Now we are facing a new crisis. As consumers we will definitely feel this in our wallets.
How to protect your wallet from war impact
So what can you and I do to protect the money in our wallet and to stay out of trouble? Here are a couple of my tips.
Check your emergency fund
Your emergency fund should contain 3 to 6 months worth of expenses. If that is not the case, it should be your priority to set aside money until you have your buffer. In this blog I discuss what an emergency fund is in detail, and why it is so important to have one. I also explain when you can use it and when not.
Keep paying yourself first
Paying yourself first when you receive your income it crucial. As soon as money hits your bank account, set aside at least 10%. What you do with it depends on your situation.
First you should, again, make sure that you have a buffer. Once that’s full, you should put this money towards investments. Paying yourself first should be so engrained in your habits that you don’t even think about it after a while. Set up an automation and you’ll see that you won’t miss it at all.
Analyze your expenses
If you feel like you’re running low on cash it might be a good time to have a closer look at your expenses. It could be that there are things that cost you more than you realize. An expense tracker can help with that. I created an Excel template that you can download for free.
Download it by clicking on the image below.
Do not panic sell
If you are already investing there’s a chance you have been nervous during the past few weeks. The market volatility has caused investors all around the world to have sweaty palms (to say the least), but I want to urge you to keep your calm.
It’s true that it can be challenging to watch everything go up and down like the ocean in a thunderstorm, but you need – and this is an absolute MUST – to switch off your emotions.
Emotions don’t do well on the stock market. If you find that hard think of it like this: you actually help the economy by staying calm. It is because of panic reactions that volatility gets worse so please don’t throw all logic overboard.
Last summer I went surfing in Morocco and I came up with this metaphor:
imagine you’re flat on your board, paddling and enjoying the water. Then all of a sudden the ocean gets rough and the waves get really high. You might start panicking and want to swim back to the shore, but you know what happens when you abandon your board in choppy waters? There’s a very large chance it will smash you on the head.
It’s one of the first things they teach you: when you fall off, protect your head. Hold on to the board instead and ride out the wave, that’s what will get you safely to the shore again.
Review your investing strategy
Having a strategy is necessary when you get into investing. When hard times strike and your portfolio’s performance makes you anxious, then maybe it’s time to review your strategy. Maybe your have taken on more risk than you’re comfortable with, or maybe you haven’t diversified enough. It’s not easy to determine the right strategy for you, that’s why I talk a lot about risk profiles in my course ‘Newbie to investor’. If you wanna learn more, check out the information on my website or send me a message on Instagram, I’m always ready to help.
The best cure for financial losses
The very best defense against financial losses? Financial education.
If you know how money works, you will know:
- how to prevent losing it
- how to get it back if you have lost it
In ‘Newbie to investor’ I teach you:
- how to analyze your financial situation
- how the stock market works
- how you can create a strategy of your own
