How to Save Money in a Low-Growth Economy

Save Money

Towards the end of 2022, it seemed inevitable that the global economy would enter a technical recession at some point this year. In developed economies like the UK, for example, the central bank predicted that the region would record five consecutive quarters of negative growth, but this has so far been averted by better-than-expected economic results.

In fact, most forecasts are now predicting that the world will avoid a global recession through 2023, despite a stagnant outlook remaining in place for most advanced economies.

Overall, economists are predicting that the global economy will expand by somewhere between 1% and 3% in 2023, with further tentative growth forecast for the following years.

However, a low-growth economy that remains on the edge of contraction is still problematic, both for households and businesses alike. So, what steps can you take to effectively save money in a low-growth economy?

Review Your Expenses and Prioritize Savings

When circumstances change and become more challenging in any discipline or area of life, it’s crucial that you adopt a proactive approach and seek out ways of responding.

In the case of a low-growth economy, particularly one where any increase in the base interest rate is being consumed by rampant inflation, this means reviewing your expenses and monthly outgoings and placing a focus on how much you’re able to save.

This ensures that you can create a financial safety net in a struggling economy, while the mere process of working through your expenses can identify potential opportunities to save.

This will also help you to identify precisely how much disposable income you have each month, which can then be calculated as a percentage of your total income. A fixed portion of this income should be committed regularly to savings, and in an ideal world, you’ll be able to put at least 10% of your monthly earnings into a high-yield account.

Over time, you can steadily accumulate savings and build a so-called “emergency fund”, which may prove worth its weight in gold regardless of how the economy fares in the months ahead.

Seek Out Targeted Investments

Rather than simply committing a predetermined percentage of your disposable income into a savings account, you may also want to consider high-yield investment assets that suit your underlying appetite for risk.

Take savings bonds, for example, which offer increased value and returns at a time when interest rates are high. Recently, the Federal Reserve raised the base interest rate in the US to 5%, pushing borrowing costs to their highest level since 2007 and identifying savings bonds as an increasingly viable asset class.

Bonds are also considered to be relatively low-risk investments, especially alternative products that are issued by governments or corporations. So, although they tend to deliver incremental returns, they’re relatively safe and ideal during times of economic tumult or contraction.

If you have a little more disposable income, you may also want to consider investing in targeted stocks.

For example, dividend stocks in blue-chip companies can deliver reliable and incremental returns even in a depreciating economy, as these entities tend to increase in value over time and can provide long-term gains.

Historically, assets in sectors such as utilities and healthcare also tend to over perform in such conditions, creating potential opportunities in the short and medium-term if you have knowledge and understanding of these market niches.

Of course, it’s important to consider asset classes that suit your amount of starting capital and underlying appetite for risk, as you look to build a generative and diverse portfolio that can minimize and withstand downturns in certain sectors.

Consider Increasing Your Earnings

Targeting relevant and viable investment assets is ideal in many ways, as this can create passive income streams that may be combined with your day job.

If you’re particularly risk-averse or have a lack of disposable income to begin with, however, you may want to consider taking on additional work and increasing your earning potential through labour.

Of course, this requires good time management and a strong work ethic, while you’ll have to take steps to identify secondary income streams that can be comfortably sustained over time.

One particularly viable option is to leverage the gig economy, which continues to go from strength to strength in developed economies like the US. Here, some 36% of workers (approximately 57.3 million people) were part of the gig economy prior to the coronavirus pandemic, but this number increased to around 73.3 million by the beginning of 2023.

In the gig economy, you can market and sell your skills as a freelancer, especially in creative disciplines such as copywriting, graphic design and software development. Often, such workers are employed on the basis of individual projects, enabling companies to streamline their operations and reduce overall staffing costs.

So long as you can create a viable work schedule and make time for your additional work projects, you can increase your earnings flexibly over time and increase the amount of disposable income available each and every month!