Increased instability, job losses, and record inflation have pushed society to the edge, and we’re now facing the very real possibility of having to cope with a recession (or possibly a depression).
That certainly isn’t good news, as recessions and economic downturns are scary times, but it isn’t necessarily entirely doom and gloom either. As long as you take steps to protect yourself and your family from taking too much financial damage, you should be okay. That’s why we’ve put together this list of tips for managing your finances during an economic downturn.
Protect Your Future
While making it through your present-day obstacles is your main concern, it’s crucial to ensure you’re not putting your future self at risk so that current-you can be a little more comfortable.
So, if you have a self-managed super fund, now is the time to enlist the assistance of one of the best SMSF specialist accountants in town. Those with commercial funds should also re-evaluate their strategy and check whether their current fund is performing at an acceptable level.
Make (and Stick to) a Recession Budget
Your usual budget won’t cut it during an economic downturn. Instead, you need a specific recession budget. This type of budget includes increasing the buffer you have in your emergency fund and cutting costs, the latter of which we’ll look at more deeply in the following sections.
Diversify Your Income
You’ll also want to build additional income streams, so you’re not reliant on your primary paycheck. That could include a side hustle, selling things you no longer need, or doing odd jobs advertised on local platforms and noticeboards.
Pay Yourself First
Even in a recession, saving should still be a priority. If you struggle to have funds left to save at the end of your pay cycle, try using the pay-yourself-first method. This strategy is particularly helpful if your emergency fund isn’t looking too healthy at the moment. However, paying yourself first can also help you reach financial goals you may not have otherwise been able to achieve. So it’s worth practising, no matter what your current situation is.
Look at Ways to Cut Costs
In addition to shopping around for groceries and seeing if your utility providers can give you a better deal, it’s also a good idea to look at ways to reduce your cost of living without sacrificing your lifestyle. While some sacrifices may become essential if times get rough, increasing the buffer between your expenses and income is always a good idea. Indeed, it is a vital step in preparing for a recession.
Invest if You Can
Finally, although spending extra money seems counter-intuitive when the world is going to hell in a handbasket, investing now can be highly beneficial to Future You if it’s within your means. That’s because stocks essentially “go on sale” during economic downturns, meaning you’ll be able to get a slice of the pie at a significantly reduced cost.
Remember that your strategy needs to be long-term to provide the most benefit, so you need to avoid panicking over the state of your investment fund when times are tight. Also, follow the golden rule of only investing amounts you can’t afford to live without.
Recessions aren’t fun, but they don’t have to be the end of the world. Take steps to protect the financial security of yourself and your family, and you should be able to ride it out. Good luck, and don’t be afraid to ask for help if you need it.