10 Tips on How to Manage Your Money in a Recession

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10 tips to managing your money in a recession

As at the time of writing, in June 2022, we are not officially in recession...yet, however it is widely accepted, that we are heading towards one and we need to be able to manage our money in a recession in order to survive. 

Since we are not in a recession now, it's a good time, to make sure you are preparing yourself for what is more than likely to come to the UK. 

So here are ten things you can do today and onwards to manage your money (both business and personal) in a recession:

1. Have the Right Mindset.

It can be worrying, especially if you have not been an adult, or run a business during a recession. In panic, we might make panic-based decisions that will do more harm than good. When we're scared, we're bound to make irrational choices. So if you're in a state of fear and worry, don't make any money moves, yet.

Give yourself time to get out of that place of anxiety. Once you're out, that's when you can start making decisions.

What's your financial status right now? Do you have an emergency fund? Is your business thriving right now, or is it headed for a crash? Is it at the brink of collapse? Or has it already collapsed?

These questions should lead you to adopt a mindset that is appropriate for your current situation. Take an objective look at your case, and decide to take responsibility. The sooner you acknowledge that you're the only one who can do something about your finances, the sooner you can make wise decisions.

2. Keep your cash.

A recession is a state of uncertainty. Unless you have intensely studied the risks and potentials of investments you want to make, it is best to sit on your cash.

If you must, pull out of stakes, so you have cash on hand – enough to give you some safety net.

3. If you still haven't, build an emergency fund.

One for your business, and one for your personal finances. 

Your emergency fund should, ideally, be able to fund your expenses for at least six months.

Prioritise this now, if you still haven't (it's not too late), and when you have emergency funds for both your business and your personal life can you only focus your finances on investing in potential future profit-earners.

Even if you are short on cash and your income is dwindling, you should still strive to put money regularly in your emergency fund.

It can be intimidating to look at a tremendous amount of money that you have to save up, but again, the key here is the right mindset.

You have to start with whatever amount of money you have.

You'll soon get used to the idea, you will be more committed to it, and before you know it, you already have emergency funds that will last you a whole recession.

And then, define your "emergency". It should be a situation where you don't have any cash flowing into your bank account anymore for your basic needs, not one where you can't afford luxuries you were so used to before all of this.

4. Focus on surviving.

As mentioned above, your emergency fund should be for when you have no more cash to spend on your food, rent, utility bills, and other necessities. The same goes for your current cash flow.

Whether your business is thriving or not, now is not the time for luxuries and unnecessary purchases.

Instil a sense of discipline in yourself to focus on spending only on what's essential, both for your business and your personal life. And you can check out our Money Leaks exercise to know what is necessary (click here). 

As a business owner, it's best for your company and your employees to be conservative in spending money.

Don't worry about exceeding profit goals, and instead make your best effort in ensuring your company stays afloat. You already achieved much if you can do this in such a tough time as a recession.

5. Revise your budget and stick to it.

Even with the right mindset, you might still find yourself losing cash faster than you expected.

It isn't enough that you have a feel of what's happening to your finances. You might "feel" that you are not spending so much, when, in fact, your expenses are still higher than your current income or profit.

An objective look at your current cash flow will give you an unbiased approach for managing your finances. You may start by listing every expense for the month. At the end of the month, you will know how much you spent on every expense. From there, determine which expenses you can spend less on so that at the end of the month, you have some savings that can go into your emergency fund.

For instance, if your takeout/delivery expense is £90 this month, you can then make a realistic budget of £70 for next month, so that you can put £20 into your savings.

You can do this for your business and your personal expenditure. 

6. Manage your debts.

Your budget should include debt repayment if you have debt.

Denying it attention will only cause you more stress in an already stressful situation. Your goal during a recession is to afford peace of mind, and paying off debt is very much part of it.

No amount of meditation, Netflix binge-watching, or working can cover up the nagging existence of liability.

You don't have to aim for altogether paying off debt; you only need to make sure that you are making efforts to reduce it. Failing to do so will cost you ballooning interest rates that could have been cash for more worthwhile investments.

7. Take a side hustle

Doing this diversifies your income and can give you some peace of mind. 

Just make sure that you don't spread yourself too thin that you are not able to commit your best to both your main job/business and your new side hustle.

Your greatest asset right now is your brilliant mind and any extra hours that you currently have. These should go hand in hand. You should always be all-in when it comes to your side hustles. You'll never know when they can turn into your main cash cow.

Alternatively you can sell some of your belongings that you no longer use. 

I love selling old clothing on Vinted 

8. Invest wisely.

A recession is a great time for bargains. Only if you have an emergency fund in place and a steady stream of income should you consider investing. If you currently have both, then you are in a high position where you can confidently shop for low-priced investments.

Remember never to put all your eggs in one basket.

Study the different options you have and distribute your investments wisely. For instance, if 20% of your current portfolio is in stocks, it might be wiser to leave only 5% in it, and allocate the other 15% in say, real estate.

Make sure you don't make blind decisions, though. Investment choices of today should be made at confident, calculated risks.

9. Distribute your cash in banks.

In the same way that your investments should be diverse, your cash should also be placed in different banks.

Under the Financial Service Compensation Scheme (FSCS) your money is protected up to £85,000 per eligible person, per bank, building society or credit union.

Therefore if you have over £85,000 it is wise to distribute that amongst banks, in the very unlikely event that a bank crashes. 

With online banking, there's now zero hassle handling money in different banks.

10. Plan for the future.

Planning now for the upcoming recession is your key to doing as well through it as you possibly can 

Don't beat yourself up for things you weren't able to do in hindsight.

Regret is counterproductive, and it consumes much of your mind.

Today, however, there's a lot you can do to ensure otherwise avoidable hardships.

There's wisdom in intentional planning. It's something you can do for yourself, for your family, and your business.

Instead of merely wishing for the best, work towards what is "best" in your terms. If you need to enlist the help of a professional for strategising for your business finances, this is the best time to do so.

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.