- Personal finance rules don't necessarily apply during a recession.
- Cut spending to the bone -- now is not the time for even small luxuries.
- Focus on short-term ways to bring in more money.
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The coronavirus recession has brought a great deal of financial uncertainty to our lives. It’s forced us to stop and think about so many things, including how we manage our finances and what we could do to improve them. If you browse the internet or speak to friends, family, or even acquaintances, you’re sure to come across tons of financial advice to follow during the recession.
But the truth is that not all of it is good. In fact, some advice may hurt, rather than help, your current and future financial situation. Here’s a closer look at financial advice you should probably consider ignoring during a recession.
Splurge on little things
When you’re short on cash and can’t buy anything expensive, you may be tempted or encouraged to treat yourself to something small like a daily dose of Starbucks coffee (mobile pick up at curbside, of course), or a weekly meal from your favorite diner. While these minor purchases may not seem like a big deal, they could add up to hundreds or even thousands of dollars in the long run.
For example, let’s say you pick up a tall $2.50 chai latte from Starbucks before you start work every Monday through Friday. That’s $12.50 per week, or $650 per year. If you made your own coffee at home, you could allocate that money toward a vacation or put it in your retirement fund. Sometimes, regular splurges on “little things” could keep you from meeting your long-term financial goals.
Focus on the present
If you’re struggling financially, it’s all too easy to focus on how you’re going to get through today, tomorrow, and next week. Although it’s easier said than done, try to consider your future as well. Ask yourself where you want to be in 5, 10, or 20 years. Maybe you want to live in your first home. Or perhaps you wish to retire or cover a portion of your child’s college.
If you are still employed, you don’t have to lose sight of your future financial goals. Make every effort to continue to save for a down payment or continue to contribute to your 401(k) or 529 plan. You may not be able to save as much as you were able to in the past, but something is better than nothing. By prioritizing your future goals and even when times are tough, you’ll set yourself up for success down the road.
Look for that perfect full-time job
The coronavirus may have left you searching for a new job, but now is probably not the time to hold out for that perfect 9 to 5 gig. Right now, it’s more difficult to find a full-time position that you’re not only a great candidate for but one that also pays well and comes with amazing benefits. This is particularly true in a recession when there are more job seekers than jobs.
Now is the time to be flexible. Consider a few side gigs you enjoy and can replace some or all of your income from your full-time job. Apply for full-time jobs that may not necessarily pay a lot but can help you develop new skills or enter a new field with a higher future earning potential. This can set you up for future success when the economy starts to recover.
Create one budget (and stick to it)
Most people will tell you to create one budget and do whatever you can to follow it. Although this isn’t necessarily bad advice, you might actually be better off with two budgets.
The first budget should be for when you’re employed and things are good financially. This budget can include basic necessities and the “extras” in life. These “extras” may be things like Amazon purchases, weekly dinner dates, or visits to the hair salon. You don’t necessarily need them but you want them as they make your life more pleasurable.
The second budget, however, is essentially a “barebones” budget and designed for when finances are tighter than usual. When you create the second budget, jot down exactly what you need to pay for in order to survive. Remove luxuries such as a Netflix subscription and extra takeout meals.
Ideally, you’ll only need to stick to the first budget but the second will be useful in case the worst case scenario strikes. It can help you quickly adjust your spending habits to accommodate a tighter financial situation.
Don’t worry about paying down debt
Some schools of thought encourage people to hit the pause button on paying down debt during a recession. The idea here is that you prioritize paying for your essentials like rent, mortgage, utilities, and food. This actually might be good advice if you are unemployed, or think you might be about to lose your job.
But if you are still working, ensure you have enough cash to cover these essential expenses, and then prioritize working toward paying down your debt. By putting any extra funds you have toward debt, you can save a lot of money on interest and work to a more stable and more debt-free future.
We have some good financial advice for you
If you haven’t had enough financial advice, here is a bit more. We have developed a simple to follow debt management guide to help you find the tools you need to better manage your money, your debt, and set yourself up for a more secure future.
Food Prices Spike: How to Update Your Grocery Budget (Freedom Debt Relief)
Learn a New Language During Quarantine: The Language of Money (Freedom Debt Relief)
Will We Get Another Stimulus Check? (Freedom Debt Relief)
5 Ways to Find Free Financial Advice (MarketWatch)