Recessions often bring about job losses and income reductions. Proper financial planning and management are needed to create a buffer, and ensure that a person has enough emergency savings and a well-structured budget. Such a security net can go a long way in covering essential expenses during financial crises. Kavan Choksi especially discusses how creating and adhering to a budget, tracking expenses and cutting non-essential spending is important for maintaining financial stability in a recession.
Kavan Choksi lists a few tips that can help in managing money during a recession
There are several economists who expect a recession to impact jobs and incomes in the U.S. down the line. Hence, it is always better to change spending habits and prepare for an upcoming economic downturn. While one person cannot out-budget a recession, there certainly are actions they can take to manage their money during a recession. Here are some of the simplest ways to manage money during a recession:
- Assess the financial starting point: A person cannot plan their finances till they actually know what these finances are. It is prudent to check the amount of money one has in their checking, savings and retirement account, as well as make a list of any sources of debt they may have. Understanding how much funds and debts one has is the starting point of creating a financial plan.
- Organize bills and due dates: After gaining a good understanding of their financial condition, one must list out each of their monthly expenses with care, including everything from food and rent to internet and streaming services. It is better to list the date that each is due so that bills can be paid on time.
- Track the monthly cash flow: One must tally their monthly post-tax income, including any side hustles or passive income they may have. This would help in accurately determining the monthly income one has to work with. Subsequent to doing so, it is prudent to calculate how much money one ideally spends over the month, and subtract that amount from the monthly post-tax income to check the monthly cash flow. Knowing where the money is going and determining how much funds one has left can help people to better gauge their financial strengths and weaknesses.
- Consider where to cut down on spending: Controlling spending is not always easy. But one needs to be proactive about what is important to them, and prioritize necessary spending more than anything else.
- Set up a realistic budget that works: People often think that they can cut out discretionary spending entirely to aggressively save, but this is not always feasible. Rather, one needs to be clear about keeping a realistic budget for money management. The 50/30/20 budget is among the most popular budget templates, and can be helpful for many.
As per Kavan Choksi, every person has a different budget and different priorities. Hence, there is no financial strategy that will work for everyone. One needs to create goals that are adaptable for them. This will help in setting budgets and goals ahead of the upcoming week, month or any other time frame that works best.
