5 Expensive Mistakes to Avoid in an Unstable Global Economic Environment

War in Ukraine and the Middle East, Houthi rebels striking cargo ships in the Red Sea, political unrest, climate change…it seems like the global economy is in a constant state of crisis. What if you lose your job, what if you suffer an emergency expense that you can't afford, what if the stock market crashes?

There are lots of "what-ifs" in the world. But no matter what happens from one day to the next in the global economy, it's important to build your own sense of resilience and stability in your personal finances.

Let's look at a few expensive mistakes to avoid during times of economic uncertainty.

1. Taking a hit to your credit score

If your FICO® Score is less than "good," (lower than 670) you are vulnerable to higher costs and painful penalties. People with poor credit are charged higher interest rates, might be declined for loans and credit cards, and might not get hired for a job, or be rejected from renting an apartment.

Building and improving your credit can be the first step to building financial resilience in unstable economic times. Here are a few quick tips:

• Make sure you're not missing payments or making late payments. Payment history makes up 35% of your FICO® Score. Even if you have to make just a minimum payment for a credit card, make the payment on time.
• Check your credit utilization ratio. Are you maxing out your credit cards? If so, you might get dinged on your credit score. Try to keep your credit utilization below 30%. So if you have a credit card with a $10,000 limit, try not to carry a balance of more than $3,000 at any time.
• Get a secured credit card. If you don't have an established credit history or are rebuilding your credit after a bankruptcy or negative credit events, you can get a secured credit card. This type of credit card lets you put down a cash deposit, such as $200 or $500, that becomes your "credit limit" for spending. Over time, you can boost your credit score and graduate to a regular credit card.

Strengthening your credit score is a smart financial move, especially if you have a lower income and not much wealth. If you don't have much money, it's even more important to avoid credit card interest and other high-interest debts.

2. Not having an emergency savings fund

If you're feeling uncertain about the global economy, how is your emergency fund? Ideally, you should have three to six months of living expenses in a savings account. Your emergency fund is there in case you lose your job or suffer some kind of disabling injury or illness, and can't work for a few months.

If you think it might take longer than six months for you to find a job, or if you want additional peace of mind, you might want even more cash savings. Money in the bank can help relieve your worries.

3. Not improving your career skills and earning power

Even if you currently have a good job and a decent emergency savings fund, it's important to stay on top of the latest trends in your field. Can you take an online course, get a new certification, or invest in professional development? Should you consider going back to school to get another degree?

Keep looking for ways to make yourself more valuable to your employer and more marketable in your industry. As of January 2024, the U.S. job market is generally strong, with low unemployment. But in case of an economic downturn, you'll want to stay nimble so you can pivot to a new job, a new company, or a new career field.

4. Putting too much money in one stock (or asset)

In an unstable global economic environment, it's even more important to diversify your investments. Putting too much money into a single company's stock, a single category of assets, or a single country's stock market can be risky.

If you are feeling nervous about the global economy, you might want to take a fresh look at how your money is invested across your portfolio, such as:

• Can you diversify your portfolio by investing in a wider range of stock and bond ETFs?
• Do you have too many international stocks, or not enough?
• Are you overly invested in your employer's stock, such as through an employee stock purchase program?

Don't put too many eggs in one basket. Stay diversified and you'll be better positioned to stay resilient during the next crisis, shock, or downturn in the global economy.

5. Making panic moves based on short-term economic situations

In March 2020, the stock market plummeted. COVID-19 was shutting down the world, no one knew what would happen next, and some people were panicking. But by the end of 2020, the stock market had recovered all those losses, and more -- the S&P 500 ended up gaining 16% in 2020.

The lesson: don't overreact to short-term economic news. Don't sell all your stocks if the market goes down, don't give up on international stocks because of one bad news story, and try not to live in a state of cynical pessimism. Just keep working, keep saving, and keep investing according to your long-term goals.

Bottom line: It's easy to feel worried, sad, or negative about the state of the world. But remember: humanity tends to recover from even the worst crises. In the long run, most people are working hard every day and trying to make the world better. Being an investor is an act of trust. Just by showing up for work everyday and participating in the global economy, you are making a statement of faith in human ingenuity and positive collaboration.