How to manage your money in a recesion
The ongoing cost of living crisis is being driven by high inflation and even higher costs. But with further price hikes expected and the economy on track to fall into a recession within a matter of months, you might be wondering what this means for your finances.
It’s normal for the economy to experience extreme highs and lows from time to time, but by sitting back and waiting for a recession to blow over, you could be putting yourself and your finances at risk.
In this blog, we’ll let you know how to manage your money before and during a recession so you can protect your pennies and avoid making minor money mistakes with major consequences.
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Reduce your spending
With a recession brewing, reducing your spending can help you get a firm grip on your finances and put some spare cash aside for unexpected expenses, such as a job loss or drop in income.
It can also help you live within your means and get better at budgeting which are skills that can have a positive impact on your finances before, during, and after a recession.
This can be easier said than done but by thinking about how your finances would fare if the economy was to slip into a recession tomorrow, for example, it can inspire you to slash your spending and cut costs wherever you can.
From cancelling unused subscriptions and selling unwanted clothes to switching to a discount supermarket and signing up for loyalty programmes, there are countless ways to reduce your spending that can help you spend less than earn and, more importantly, recession-proof your finances.
Bulk up your savings
The lead up to a recession is the perfect time to do some damage control and bulk up your savings.
Whether you’re worried about keeping your job or just want to ensure you’re prepared for the worst possible scenario, it can help you meet your essential costs and avoid being forced to miss a rent or mortgage payment.
The figure you should be aiming for is unimportant but most financial experts agree that a minimum of three to six months’ worth of living expenses is enough to bridge the gap when the economy, or your job, is hanging in the balance.
Don’t panic
In the midst of a cost-of-living crisis, it’s normal to be worried about what a recession could mean for you and your finances. But with everyone in the same boat, there’s no need to panic.
There is nothing you or – despite their best efforts – the government can do to prevent the economy from falling into a recession and panicking will only exacerbate any negative feelings you have and make things worse than they need to be.
With financial experts confident a recession will take place before the end of the year, getting your finances in order and remaining cool, calm, and collected will put you in the best possible position to come out on the other side unscathed.
Clear your debts
When a recession hits, it can be difficult to know whether you should tackle your debts or wait until the economy finds it feet again. But if your income also takes a hit, you can end up not only struggling to repay your debts but sinking even deeper into debt.
With the economy expected to get worse before it gets better, you should aim to clear your biggest debts before you’re left with no choice but to miss a monthly payment as this can have a negative impact on your credit score and you could be threatened with legal action.
With more obligations to cover and creditors only likely to ramp up their collection efforts, it can give you more breathing room in your budget for both essential costs and unexpected expenses.
Budget for everyday and emergency expenses
It might seem daunting but with a recession on the cards, there has never been a better time to get into the habit of budgeting for both every day and emergency expenses.
Whether you just want to set aside some spare cash for the weekly food shop or build a cash cushion for those months when your wages fall short of your essential costs, it can help you get a firmer grip of your finances and keep track of what’s coming in and out.
It can also prevent you from being forced to dip into your savings or overdraft to cover the cost of everyday essentials with this only likely to lead to further financial problems down the line.
