How To Manage Your Personal Finances During Economic Downturn
The economy is going through a rough patch, and millions of Americans are struggling to manage their personal finances. People have seen recession, downturn, slumping economy and skyrocketing unemployment rate for several years. You can overcome the tough economic times through budgeting and money management. Learning to manage your finances benefits you in two ways:
- It alleviates the burden on your current financial position.
- It will prepare you to weather tomorrow’s challenges successfully, and you will be able to avoid repeating the same mistakes again.
Here is what you should do to make each dollar work at its best for you:
The Biggest Mantra of Personal Finance Education: Save A Bit A Time For Rainy Days
You don’t know when an emergency would occur, or when your employer may announce a mass layoff. What will you do if you don’t have anything in emergency savings? To ensure that you don’t have to depend on others, you should have at least 6-12 month emergency savings fund. Do it in small steps. Put just a little every month into a bank saving account, and within just a few years you will have enough funds to pull you through any financial crisis.
Though it is the most important money management technique, it is a long-term process. So, you should start saving a little every month to weather the future economic downturns.
If you are already financially stretched, use the following process.
Step Back And Review
Sometimes it is important to look back and analyze in an objective manner, as they say, “you have to know the problem before you can solve it.” First, you should make a list of your income sources and expenses. Try to include every expense in the list, even the trivial ones like spa and gym memberships, daily trip to the coffee shop, etc. Now you are in a better position to manage your finances.
Re-budget During The Recession
Almost everyone has some bad spending habits. Even purchasing the premium brand cookies requires a little higher amount. Though it appears to be very small sum, but the small amounts add up quickly.
Make a list of your “needs” and “wants”, i.e., things that you can’t live without, such as food, clothing, shelter, etc; and things you can live without. To eliminate the unnecessary spending, go through your list of expenses and ask yourself, “Can I eliminate this expense entirely?” If that’s not possible, try to reduce it by 40-60 percent.
Cut on the luxury items. Do you spend $100 every month at Starbucks? Stop it and the money will easily stay in your bank account. Do you read all the books that you purchase every month? If not, buy only as many books as you can read. You can also save by downgrading the cable/Internet package based on whether you really “need” them.
If you don’t practice such self-discipline, you’ll soon be purchasing things on credit, or worse, you will go broke!
Supplement You Income With New Streams
Many people find their income sliding during the economic downturn, employers cut their salary, bonuses or working hours. So, it’s extremely important to cut your expenses accordingly. You can also create a second source of income to compensate for the loss of income from the primary source. Yes, there are many secondary sources of income, such as setting up an eBay store, mystery shopping, professional blogging, etc.
You can also take up a part-time job if you like. Many people put their skills and hobbies to make extra money. Do you like photography? If you have a skill that you may be useful to others, post your services on Craigslist.
Apply The Successful Money Management Techniques From The Past
For many people, this is definitely not the first economic downturn. Revisit the approaches that have worked for you during the past storms, and see if you can use them again. It gives you confidence that you have successfully weathered the tough economic times in the past, and you will do it again. Sometimes you can also learn from the mistakes of others.
Don’t get overwhelmed by the bad economic news on the TV, just take a deep breath. Stick to the above rules and you’ll survive the economic downturn without any major trouble.
Do you have any more tips? Share them with us.