Managing your money during a recession
Nigeria recently joined the league of countries in a recession as it entered into its second recession in five years. As you already know, the economy has been at mercy of COVID-19 and a drop in oil price which hit the already fragile economy like a tornado, wiping away government revenue needed to grow the economy. After all the speculations, guesses and signs that it was looming, the recession finally happened thanks to the economic strain from the pandemic.
The word Recession sounds frightening to most people as they see it as a period when finances dry up. However, as the saying goes when the going gets tough, the tough gets going. While a recession is something beyond our control as individuals, we can control how we respond to economic instability and ensure that we will not only survive, but come out of it stronger.
There is no better time than now to keep a keen eye on your money. If living through a pandemic was not enough to keep you on your toes concerning your finances, the recession is a louder reminder.
Read Also: Factors that pushed Nigeria into recession
What is a Recession
Before we get too far, let’s walk through what a recession actually is. A recession happens when there’s a slump in growth and economic activity for at least two quarters (about six months). The good news is that a recession does not last forever. Instead of panicking and worrying during a recession, there’s still a lot of good work you can do with your own personal finances despite what going on in the economy.
Here are a few tips on how to get your finances through the recession and even thrive though it.
Keep a positive mindset
As scary as recession is, it is important to stay positive during it period. On a practical level, it is hard to remain positive when you are surrounded by bad news on the recession. However, it is important to understand that your state of mind and how you feel has a direct impact on your actions and the results you achieve. You might need to minimise your consumption of the press and media and look out for good news and opportunities in a recession because there will always be one lurking around the corner. Panicking does not help during this period because it has an immediate effect on your decision-making abilities and adds to the already-high-stress that everyone around you is experiencing.
Boost your savings
This is also a good time to boost your savings. A recession most times affects the ability to earn money because of weak economic activities. When the economy starts to dip, jobs and incomes can be put in jeopardy so it is a good time to beef up your emergency fund. While income may decline during the period, expenses will likely stay the same as you will still need to pay rents, utilities, groceries among other things. So it is time to make savings a habit. There are some great savings apps that could help like PiggyVest, Cowrywise, Alat and so many others.
Cut spending and live within your means
Next, it’s time to start putting your spending plan to action. If you already have a budget that you’ve been working with, you will want to take the necessary time you need to revisit it, review it, and make sure that it’s in your best interest for these difficult times. It’s always a good idea to go through your monthly expenses and identify which items are necessities and those that are not. This may require adjustments on where or how you are spending your money and cutting down on certain areas. If you have yet to create a budget, now is the time to start and you need to take this seriously.
Learning how to live frugally can be a great strategy during a recession. If you can do without it for a while, maybe it is not so necessary.
Minimise your debt
In a recession, debts can get out of hand. However, carrying high levels of debt can be very risky, because any unexpected changes to your financial status could end up affecting your ability to pay these debts. It’s important to stay on top of your debt payments to ensure that they are not negatively compounding to the point that you need to take on even more of a financial burden.
Find creative ways to bring in money
A familiar saying goes “don’t put all your eggs in one basket,” and this adage could be applied to your source of income. A common occurrence during a recession is job loss. Relying on one source of income could be risky during this period, because if hard times hit your company and it results in job loss, the only source of income could be lost and this could affect your ability to meet all your financial obligations. Multiple streams of income can help during this period. Because if one dwindles, to can fall back on another to keep you afloat. You don’t necessarily have to get a second job, having multiple streams could come in different ways like renting out a room in your home, renting out a space in your garage or any other creative idea.
In conclusion, remember to stay positive and look out for the opportunities in a recession. A recession does not last forever.