Bitpanda Money Matters #06: navigate economic uncertainties

That’s why this edition is all about building resilience in uncertain times. We explore how to protect your finances with an emergency fund, stress-test your financial plan and secure multiple income streams with a diversified portfolio. The goal? Helping you stay in control no matter what the economy throws your way.

This article builds on the previous editions of this series, particularly the financial plan from issue #03, which you created in the third edition. If you haven’t completed this step yet, it’s worth doing that first.

Why financial resilience matters

Economic ups and downs are a part of life. Markets can soar during periods of growth, bringing new opportunities, but they can also dip due to recessions, inflation or unexpected global events. Prices may rise, interest rates may shift and job markets can tighten.

While no one can predict exactly what will happen, being prepared gives you the confidence to handle uncertainty. The key is not to predict market movements, but to have a plan that works in most situations:

Here’s how to get started:

Step 1: Build a solid safety net with an emergency fund

Emergency funds cover unexpected expenses like medical bills, home repairs or sudden job loss, preventing you from selling investments at a loss or taking on high-interest debt. More than just a safety net, it gives you the freedom to make financial decisions without added pressure, even in uncertain times.

How much should you save? It is recommended to set aside three to six months’ worth of essential expenses in an easily accessible account. If that feels overwhelming, start with a small goal – even saving €500 to €1,000 can provide a buffer for unexpected costs.

Where should you keep it?

• A high-interest savings account ensures your money is accessible while earning some interest;
• Low-risk assets like money market funds can offer stability while keeping funds liquid.

Learn more about different asset types in this guide.

Step 2: Stress test your financial plan

A solid financial plan is more than just budgeting and investing. It also needs to hold up under pressure. So far, we have focused on setting (SMART) goals and structuring your investments. Now, it’s time to put that plan to the test and ensure it can handle unexpected challenges. This helps you identify potential weak spots and adjust your plan before a crisis hits.

Ask yourself:

• What if my income drops by 20%? Can I cover essential expenses without going into debt?
• How would I handle a major unexpected expense? Do I have cash reserves or a backup plan?
• Can I still meet my financial goals during market downturns? Is my investment strategy too risky?

If any of these questions reveal vulnerabilities in your plan, it is time to strengthen it by:

• Reducing non-essential spending to free up cash for savings and emergency expenses. Need help getting started? Check out our guide on saving money every day.
• Considering income protection insurance to safeguard against unexpected job loss or reduced earnings.
• Building up liquidity by keeping a portion of your assets in easily accessible funds for short-term needs.

Step 3: Secure multiple income streams

Relying on a single income source can be risky, especially in uncertain times. Diversifying your income helps you stay financially stable, even if one source is affected.

Ways to diversify your income include:

1. Investments: Building a well-balanced portfolio can provide long-term growth and passive income.
2. Side hustles: Freelancing, online businesses and offering local services like tutoring can supplement your earnings.
3. Upskilling: Learning new skills can open doors to higher-paying job opportunities.
4. Passive income: Earning money with minimal ongoing efforts via dividends, rental properties or digital products. For practical tips, check out last week’s article on how to start building passive income streams.

How to structure a diversified portfolio

A diversified portfolio reduces risk by spreading investments across different asset classes, industries and regions. The right mix depends on your financial goals, risk tolerance and time horizon.

Here are two example strategies:

1. Balanced growth and stability

This portfolio is designed for long-term investors who want steady growth while managing risk. It combines high-growth assets with more stable investments to balance potential returns and volatility. The goal is to build wealth over time while maintaining liquidity for unexpected expenses.

• 50% stocks and ETFs – diversified across industries and regions for long-term growth
• 20% fixed-income assets – bonds and dividend stocks for stability and regular income
• 20% alternative investments – crypto, real estate and commodities to hedge against market fluctuations
• 10% cash or liquid assets – an emergency fund and short-term savings for financial flexibility

This approach suits investors who want growth and a safety net to navigate market downturns.

2. Passive income focus

This portfolio is designed for investors who want to generate steady income while preserving capital. It prioritises assets that provide regular payouts, making it a strong option for those looking to supplement their salary or create a reliable income stream for retirement. The focus is on cash flow rather than high growth, ensuring financial stability over time.

• 40% dividend stocks and ETFs – steady income from dividends while benefiting from potential capital appreciation
• 30% real estate or REITs – rental income and long-term value growth to provide consistent cash flow
• 20% bonds – reliable interest payments that offer stability during market fluctuations
• 10% cash or money market funds – liquidity for short-term needs and financial flexibility

This setup works well for those who want their investments to generate income without frequent buying and selling, making it ideal for long-term financial security.

Getting started

As always in this series, we’re wrapping up with practical, small steps you can take right away to fortify your financial resilience.

Here’s how to get started:

• Assess your current financial safety net: Do you have an emergency fund? If not, set a small savings goal this week and think about setting up a dedicated savings plan.
• Run a financial stress test: Review your budget and identify areas where you could cut expenses if needed
• Explore additional income opportunities: Could you start a side hustle, invest in dividend stocks or upskill for career growth?
• Review your investment strategy: Is your portfolio well-diversified to handle market fluctuations?

Next week, we'll round off the series with the final piece of the puzzle: investing for the long term. You’ll learn how to maximise returns while managing risk, ensuring your portfolio stays strong over time. Stay tuned!

In the meantime, you can explore more articles on financial planning on the Bitpanda Academy.

Disclaimer

This article is distributed for informational purposes, and it is not to be construed as an offer or recommendation. It does not constitute and cannot replace investment advice.

Bitpanda does not make any representations or warranties as to the accuracy and completeness of any information contained herein. 

Investing carries risks. You could lose all the money you invest.