Managing money and wisely allocating the budget can be challenging. However, given the recession that the world is experiencing today, you need to have exceptional skills in budgeting.
You must keep on tracking your finances. As the saying goes, “Spend wisely,” families should carefully identify the needs and wants to make sure that the money is spent wisely. Some may disregard tracking their finances especially if they are financially able, but with the recession, saving as much as you can is very vital just in case of a job loss and to also avoid financial risks.
In this article, we are going to tackle things that a family needs to do to overcome the recession.
➡️HOW TO MANAGE MONEY DURING A RECESSION?
➡️WHAT SPECIFIC MINDSET SHOULD WE HAVE IN BUDGETING?
➡️FINAL THOUGHTS ABOUT THE RECESSION
WHAT IS RECESSION?
A recession is a significant decline in economic activity that lasts for months or even years. Experts declare a recession when a nation’s economy experiences negative gross domestic product (GDP), rising levels of unemployment, falling retail sales, and contracting measures of income and manufacturing for an extended period. Recessions are considered an unavoidable part of the business cycle—or the regular cadence of expansion and contraction that occurs in a nation’s economy. – Forbes Advisor
In other words, the economy is struggling, people lose their jobs, declining sales of the companies, and even companies are on the brink of bankruptcy.
HOW TO MANAGE MONEY DURING A RECESSION?
Everyone knows very well that the economy is not doing well due to the pandemic, inflation, etc. With the recession going on, we must know where we stand.
Here are 4 tips on how your family can manage money during a recession. We hope that through these tips we share, you can get great ideas to help your family survive and overcome the recession.
Tip #1: Set a budget
If you don’t usually set a budget, now is the perfect time to do so. You need to create a budget to know how much money is coming in and how much you are spending. Be wise in allocating your budget to certain things. Spend on essentials and prioritize more needs than your wants.
In a more specific sense, you should allocate your monthly net income budget to what is essential: 70% for food, rent, utility, bills, and transportation, do not forget to set a budget for your savings and that would be 20%, lastly the remaining 10% for your wants. This is the 70/20/10 budget allocation. The percentage will vary depending on your financial status changes.
According to Ian Bullock, the co-owner of Buying Property 215, “The wisest move to make during a recession is to reevaluate how you are allocating your budget to your needs and wants. Then, compare your budget to the income you’re making every month. The key is to always live below your means, accumulate as little personal debt as possible, and leave some amount for savings. If you can, it’s also not a bad idea to have a list of priorities for spending and allocate money for those items beforehand. This will prevent the causal impulse buys that end up eating a lot of people’s budgets,” he says.
He also added, “To prevent yourself from inadvertently allocating too much money for your wants, think about having an allowance for yourself. It’s a great hedge against excessive spending on frivolous purchases because you’ve already allowed yourself a bit of elbow room. This is especially good if you don’t have the best spending habits. You can curb your impulse buys by limiting yourself to a definite amount in a given amount of time.”
When you set a budget you are too far on being an impulsive shopper, instead, you are a wise spender.
Tip #2: Look for a source of extra income
If things are tight when it comes to budgeting, find a source of extra income. Now, don’t forget that even if you aim to earn more, you need to make sure that you will not be feeling burned out. Find ways to earn additional income at your own pace. Do not compromise your work and personal life balance.
Cody from Innovenn posits that finding another source of income can help people have extra financial stability. “Long before the recession happens, side hustles are already a trend and people tend to find ways to bring extra cash to the household so that it will not be hard when it comes to allocating budget”, he says.
These side hustles don’t have to be high-paying jobs but are valuable in helping you extend your budget. Some of these jobs are freelancing, copywriting, content writing, transcription, online tutoring, and many more.
When you do this tip, even in tight times your budget will not be constrained.
Tip #3: Develop good financial practices
If you want to still be financially stable amidst this recession. Here are the top 2 financial practices you should consider adding to your bucket:
- Re-evaluate your expenses. Consider what you can cut from your budget. It doesn’t mean that you need to excessively change your diet– like if you cut your budget you need to settle on just instant noodles and canned goods, but instead consider purchasing less of what you usually have.
As GNG’s editor-in-chief, Leo Coleman has said, “Developing good financial habits is just like adopting a new dietary plan. You can’t go full-on without expecting a risk of relapse. And just like diet, gradual elimination works best when it comes to expenses. You can start by gently reducing your spending on non-essential items.”
- Increase your savings and create an emergency fund. If the recession has greatly affected you financially, your savings might be your family’s lifeline. There should be at least three months worth of savings, but practically speaking anything is better than nothing. If you are living paycheck to paycheck, it’s okay to try to allocate even a little for your savings that would also be used as your emergency fund
Other than these two practices, you can improvise your own according to your budget and paycheck. Nevertheless, our goal is to help ourselves and our families survive the recession.
Tip #4: Manage your debt
According to Daniel Smith, CEO of Ledask, “Keeping track of all your unpaid debts and paying them on time is extremely important. Why? So that your budget allocation will not be disrupted. Also, if you do not pay on time interest will pile up and it will be hard for you to get out of your debt. During the recession having lots of unpaid debts is not a good idea”.
If you can pay off your debts, might as well do so. This way, when all debts are paid you can focus more on allocating your budget to essential things and savings.
WHAT MINDSET SHOULD WE HAVE IN BUDGETING?
For some who are just starting to know the complexity of the word “budget”, creating a budget may be a Herculean task. However, taking small steps and having in mind that these steps will secure your financial stability.
We should develop a “budgeting mindset”, by setting limits for spending and finding ways to manage our money wisely. Your income should be equal to your expenses including your savings. Set your mind on what is essential and needed, and then decide how much you set for your “wants” when everything more important is taken care of.
FINAL THOUGHTS ABOUT THE RECESSION!
Overcoming the recession is surely not everyone’s favorite part financially speaking. But it is very important because this is also a way for us to be financially responsible and to be prepared for a possible economic crisis.
Indeed, the recession might be difficult for all of us but with discipline, in spending our money we can be a great helping hand to our family.