The pandemic sparked a financial crisis that affected the future of millions of people across the world. So many people were demoted. Others completely lost their jobs. In fact, did you know that 114 million people lost their jobs in 2020? Most of them weren’t able to work because their employer had to shutter their business. Aside from that, everyone had to deal with rising food costs, not to mention soaring petrol prices. Data shows that the global inflation rate has affected consumers’ ability to make purchases.
During an economic downturn, finding ways to manage your money well to reduce stress and protect you against incurring debt is important. Here’s how to manage your finances in a tough economy.
Pay Your Debts
It can be tempting to hold on to every single cent you have and delay or avoid paying debts during a financial crisis. However, experts say that paying debts during a recession is an important step towards financial security. By doing so, you’ll have more credit which you can use in case of an emergency or job loss. You’ll also avoid paying higher interest rates and be more likely to get approved for new lines of credit if lenders see that you’re a responsible borrower.
For instance, if you’re seeking a loan to finance a significant purchase such as a new business location, you may qualify for a secured or unsecured loan if you’ve got good credit. To improve your credit rating, pay high-interest debts first. You can also transfer your existing credit card balance to a card that offers an initial period wherein you won’t be charged interest on your monthly payments.
Keep Track of Your Expenses
During tough times, some people tend to spend on items that they don’t need as a way to feel better. In a University of Minnesota study, it was found that people raised in an environment with low economic sources tended to be more impulsive in their spending during a recession. Making frequent, unplanned purchases can put your financial goals in jeopardy though, so make sure to keep track of your expenses. Always prioritize primary expenses, such as bills, food, and rent, and cut down spending on things that you can do without. These may include music and streaming services, mobile apps or software subscriptions, delivery app fees, daily caffeine fix at the coffee shop, etc.
Change the Way You Save
Most people live by the 50/30/20 rule, which means spending 50% on needs, 30% on wants or miscellaneous expenses, and 20% on savings. While this is an effective way to put away money for a rainy day, changing the way you save can be a smart move in a tough economy. After all, things can happen when you least expect it– your company may be forced to downsize the number of its employees, there could be a medical emergency, or your car could be damaged and declared as economically irreparable. You’ll need a significant amount of money saved to cushion some of the blow from these financial setbacks, so plan on saving 30% or more every payday.
An economic downturn can be catastrophic for those who are not prepared for it, but if you plan and manage your money wisely, you can avoid potential money troubles and have enough cash saved for emergencies. Consider these tips to manage your finances so you can emerge unscathed after going through a tough economy.