How to manage your money during an economic recession

COVID-19 has impacted our lives in ways we never would have imagined. People have faced plenty of hardships during these uncertain times, like salary cuts or even unemployment. The economy is currently in a downturn, which means some of us have had to be extra careful with how we spend our money and even dip into our savings due to the circumstances. This pandemic, which has inevitably led to lockdowns and quarantine routines, has also left us with an ample amount of time. Why not use it to our advantage? Here are a few simple steps you can take to assess and keep track of your spending, especially in times when income and savings are crucial.

Understand your income and expenses

Understanding your income is easy – it’s only a matter of calculating what you make monthly. Really taking the time to understand your expenses is where it gets tricky. But, you need to thoroughly understand both to make managing your money easy. It is important to be aware of what you’re spending each month and where exactly your money is going. If it matches your income or leaves you with a little extra, that’s great! However, if you are left with a deficit, that means extra planning and steps need to be taken to cut down on expenses and learn to be smarter with your hard-earned money.

Create a budget

Never underestimate the power of good budgeting skills. Allocating money to different expense areas is probably the smartest thing you can do with your money. Regardless of your income, set aside a certain amount of money a month for things like groceries, entertainment or transportation.

Keeping track of what you spend (and where) will make creating a budget and sticking to it a lot easier. You can do this by looking at your past expenditures and keeping receipts. A budget will make sure you don’t go over what you have available for every month. If you notice you are spending more than you should in certain areas, you can develop a plan for cutting back and sticking closer to your goal. If you happen to have a surplus, it’s great to add to your savings or use it to treat yourself!

Stick to your budget

A budget is useless if you don’t stick to it and keep track of your expenses. One of the simplest, yet most effective methods to maintaining your budget is with an Excel spreadsheet. However, any organizational method that helps you to follow through as planned is worth a try. There are also a ton of great budgeting apps on the market that can help.

You can develop healthier spending habits by asking yourself three questions before making a purchase:

1. Is this purchase necessary?

2. Is it worth it?

3. Will it fit into my allocated budget?

Eliminate unnecessary expenses

Spending US$4 on a cup of coffee every day? And maybe US$15 or more on a meal? Small costs like these can fall under the category of unnecessary expenses. While they may seem small, they do add up over time. Imagine buying a US$4 coffee every day – that piles up to US$120 a month.

You can instead spend this money on groceries. By purchasing the ingredients to make your own coffee and food at home, you’ll spend a fraction of the price you normally pay in stores. If you want to take steps to best manage your money, it is smart to be decisive and eliminate any unneeded expenses that add to your budget and leave you closer to a deficit instead of a surplus.

Create an emergency fund

You never know when you may need money for an emergency. None of us expected this pandemic or the toll it has taken on our lives. These are times when everyone may need to dip into their emergency funds. Whether it’s not being able to make rent or needing a little extra for an urgent visit to the dentist, we can’t always plan for the uncertainties life has in store for us. This is why it’s best to keep a little saved just in case.

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