How to Manage Personal Finances During a Recession
The economy isn’t static and, unfortunately, there are cycles where markets are down, companies struggle, and people can get hit financially. In a recession or economic downturn, people are more likely to lose their jobs and have trouble finding new ones. Those who do contract work, freelance work, or manage small businesses can also be hit as there might be fewer customers and, therefore, less money coming in.
While individuals can’t really do much to control whether there is a recession, there are steps people can take to survive these challenging economic times. Here are some tips for getting through a recession.
Reduce your Debt
Most people have at least some debt. In good economic conditions, you may be able to afford your debt payments. However, if circumstances change and you lose your job or have your hours cut back, it becomes incredibly tough to make ends meet. Debt can quickly become a burden.
It’s crucial to have a plan to repay your debt as soon as possible. A debt repayment plan begins with knowing and understanding your debt. Then you’ll need to create a budget that allows you to make your payments. For some tips that can help, please read our blog on how to pay off debt wisely.
Live on Cash
Much like it’s crucial to pay off debt effectively during a recession, it’s also important that you avoid adding on new debt. This means learning to live off cash. Look at your budget and determine how much you can afford to spend. Then, when you go shopping, leave your credit cards at home and only spend cash. You won’t be able to take on new debt if you’re only spending cash.
However, know that living on cash takes much more planning and discipline than shopping with your credit card. If you’re not careful and you don’t stick to your budget, you can easily run out of money before you pay all your monthly expenses. One way to avoid this is to track your spending and compare what you’ve spent to your budget. If you find yourself spending more than you should, you’ll need to adjust your spending to stay within budget.
Build an Emergency Fund
Sometimes there are signs that challenging economic times are coming. In some instances, you might hear about the prospect of a recession on the news. In other, you may see that your employer is cutting back hours or struggling to meet targets. You may even notice that it’s getting harder for people who are out of work to find new jobs. If you see any of these signs coming, it’s a good idea to start working on increasing your emergency fund.
Emergency savings are critical. Unexpected expenses, such as emergency car repairs or medical bills, can come up at any time. If you don’t have savings, you’ll likely need to go into debt to pay these unexpected costs. Make sure to put some money aside each month and build up an emergency fund to get you through the challenges of an economic downturn.
Even if you’re currently living within your means and you have an emergency fund, it’s still a good idea to cut your expenses during a recession. Economic recovery often takes longer than expected, so you’ll need to make sure you’re living well within your means.
Look at your spending and see where you can make cuts. For instance, if you’re paying for a gym membership that you rarely use, this can be something you may want to change. The same is true for streaming services, cable packages, and other monthly costs. Consider whether these are worth the expense.
Another way to save quite a lot is by buying groceries and cooking your meals at home. This is much less costly than buying meals at restaurants and it’s often healthier as well.
Diversify and Consider New Plans
When the economy enters a recession, it can be tough to continue earning the amount you’re used to. It can also be hard to get a new job if you unfortunately lose the one you have. However, there are things you can do to help your situation.
Make sure to keep your resume up to date and consider new opportunities when they come up, even if they’re slightly different than your current work. As times change, you may need to modify your career path so you can continue earning.
Taking on freelance or contract work can also help diversify your situation. If you have several freelance clients in addition to your regular job, you’ll likely be able to keep earning some income even if you lose a portion of your work.
Think about whether you can turn your hobbies, interests, or skills into money-making ventures. A home-based business can provide you with a second source of income that will help you get through challenging economic times.