Buzz
Right now, there are two major uncertainties that impact all of us: What the future holds for the COVID-19 pandemic and how it will affect the global economy. If we enter a post-pandemic recession (or find ourselves in the midst of one), what does that mean for our jobs, our incomes, and how should we be financially preparing for what's to come?
For some, adjusting spending habits has already become a necessity. Others may feel secure due to their high-paying jobs, emergency savings, or remote work opportunities. However, recessions tend to affect everyone, so it’s time for all of us to reassess our financial plans and start saving as much as possible.
Here are three key tips to help you get started:
Treat Your Income Like It Could Be Temporary
I've mentioned this before, but it's worth repeating: The income you're earning right now is temporary. If you're making less than you'd like, there are opportunities ahead to earn more (promotions, new roles, side gigs, etc.). If you're content with your current income, don't take it for granted—don’t assume it will always stay the same.
This mindset becomes even more critical during a recession. As jobs become scarcer, it's wise to treat your current income as though it might need to last longer than expected. This doesn’t mean cutting back on every non-essential purchase, but it might be wise to reduce some spending so you can increase your savings or bolster your emergency fund.
Saving Now is More Valuable Than Spending Later
Regarding saving versus spending: Many retailers might offer large sales and discounts to encourage people to start shopping again—but grabbing a bargain may not always be the best financial decision.
As Ramit Sethi of I Will Teach You To Be Rich explains in The New York Times:
When facing so much financial uncertainty, it's wise to prioritize cash. Mr. Sethi suggests that if you have major plans for the rest of the year, like a wedding or a big trip, consider postponing them—even if it means higher costs down the line. 'In times like these, especially with rising unemployment and uncertainty, money in your pocket today is worth more than money in your pocket tomorrow.'
This advice isn’t just for future purchases. It extends to any part of your budget where you could spend less now, such as passing on a great deal on a new car that might be more expensive next year, or using coupons before they expire.
In other words: When you come across an incredible deal, remind yourself that having cash available is often more valuable than saving a few bucks on an unnecessary purchase. Saving $20 might still mean spending $80, after all—and you might find better ways to use that $80.
Try budgeting for 30 days, then reassess your strategy
If you're concerned about how long your funds will last during the pandemic or a potential recession, or if you're simply uncertain about what to do with your money right now, I suggest taking the Money Moves Quiz from the online financial counseling service SmartPath.
When I took the quiz, SmartPath gave me this recommendation:
You have solid financial safety nets. However, we suggest that you cut your expenses and save every dollar for the next 30 days. Then, reassess.
I’ll give you the same advice, regardless of the strength of your financial safety net. Set a budget, reduce your expenses, and save every dollar you can over the next 30 days, then reflect: Did you cut as much as possible? Did you make any purchases you now regret? Were there any you should have made but didn’t? How did your budget impact your overall quality of life?
Once you have the answers to these questions, you can adjust and refine your budget for the next 30 days. Keep budgeting, reflecting, and repeating while saving as much as you can—because no matter how financially secure or uncertain you feel right now, preparing for an unpredictable future is crucial.
