The economic turmoil we’ve experienced over the past couple of years may not be over yet. Experts say to brace ourselves for what’s to come, but that doesn’t mean we should panic. Time is on our side. If you buckle down now and do what you can to perfect your money management strategies during a recession, you’ll come out unscathed from the whole ordeal.
Think of it this way, if the worst doesn’t happen, you’ll be ahead of the game, but if it does, you’ll be more than prepared.
Here’s how you can manage your finances during a recession.
Cut Back on Expenses
If you have areas of your life you can cut back on your expenses, now is a great time to do it. You don’t have to drastically change your life, but most people can get creative and cut back in certain areas, saving even a little money.
Here are a few key examples where your budgeting can change slightly:
- Use coupons when grocery shopping
- Meal plan and only grocery shop once a week
- Avoid impulse buys
- Cancel unused gym memberships
- Cancel any unnecessary subscriptions for the time being
- Cancel cable and instead stream a less expensive service
- Shop around for cheaper internet or cell phone services
Don’t think of it as a sacrifice. Consider it preparing yourself for the future – you’ll thank yourself in the long run.
Find Ways to Pay Down your Debt
High interest credit card debt is an opportunity cost to saving. If you can’t pay your debt off completely, consider finding other ways to pay it down so you minimize your interest charges.
Here are a few ideas:
- Consolidate debt onto a 0% APR credit card, budgeting enough money each month to pay the debt off completely before the 0% APR expires.
- Use the debt snowball method to pay down your debts. Arrange your debts in order from smallest to largest balance. Make the minimum payment to each debt but pay any extra money to the first debt in line. Keep doing this until you pay the debt off in full. Take the amount you paid to that first debt and move on to the next in line, continuing until you’re out of debt.
- Take out a personal loan and consolidate your debts into it. This gives you one loan and one interest rate to pay.
Stay the Course with your Investments
It’s common to jump ship when the economy suffers. You think your investments will tank so you want out. Instead, stay in them for the long term. As history shows, the economy always bounces back. It might take years, but it will come back.
Any money you have invested for long-term goals such as retirement, keep in your portfolio. You’ll have time to ride the wave back up and earn money again. If you get out now, you’ll walk away with a loss, which probably isn’t what you had in mind when you originally invested.
Include Conservative Investments in your Portfolio
As much as you shouldn’t bail out of your investments, it’s important to have a diversified portfolio. If previously you had all aggressive investments, consider backing down a little bit, giving yourself a safety net.
Include investments in things like bonds, treasury securities, and even CDS. This gives you peace of mind knowing you have some money that you won’t lose, while other funds are in more aggressive investments that will see peaks and valleys over the next few years.
Build a Solid Emergency Fund
Even when we aren’t in a recession, everyone needs an emergency fund. Today it’s even more crucial, though. You may even want a larger emergency fund than you had before just in case.
Think about 2020 when the world changed in the blink of an eye. You probably wished you had more than 3 months of expenses saved, right? Millions of Americans had nothing saved and were caught red-handed.
Don’t let that happen again. Make an emergency fund a part of your budgeting plan. At a minimum, set aside 3 to 6 months of expenses, but it’s not a bad idea to have at least 12 months set aside just in case.
Final Thoughts
Despite the warnings and bleak outlook, the media portrays, we always make it through a recession. Looking back most people say it wasn’t as bad as they thought. The key is to make a proper budgeting plan now so that you can come out of it ahead of the game.
Cutting back on your expenses, saving as much money as possible, and getting out of debt are the key ways to manage your money during these times when so much feels unknown yet when you look at the big picture, you have more control than you realize.
Read How to Get Financially Fit and Beginner Investing for Inflation.
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