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4 Ways To Protect Your Finances Against A Recession

There is no question that we will experience an economic downturn during 2020 and for some time beyond. The current trend has created a debate as to where exactly the economy is heading. Some economists say we’re heading for a global recession, while others predict a global depression. One thing is certain though, an economic downturn is imminent.

The coronavirus has impacted our economy in ways nobody could predict. We’ve seen job losses across South Africa over the past few weeks, and we might see that trend continue. Business Tech predicts that South Africa could face over 370 000 job losses in 2020.

 The best we can do is to prepare for the worst.

 How do we protect our finances in the event of a recession?

1. Save an emergency fund

The only way to start saving money is to understand how to spend money. This means changing your spending behaviours and start tracking spending.

There are various ways to do that.

Use a spreadsheet. This traditional approach of tracking your spending allows you to deep dive into your spending habits and to get a clear pattern of how and where you’re spending your money.

Use apps to help keep track of your spending. Apps like 22Seven tracks all expenses, debt repayments, investments, savings etc. The app also breaks down your spending habits, making it easier to analyse.

Once you have a good sense of your spending behaviour you’ll be able to analyse the “needs” from your “wants”. This will help you make valuable changes to your spending behaviour and start saving money. The key is to minimize spending on your “wants”.

To keep track of your spending habits you’ll need a basic budgeting plan.

The 50/30/20 budget strategy is a great place to start. This budgeting strategy is broken down as follows:

  • 50% goes towards “needs” (monthly expenses, travel etc.)
  • 30% goes towards “wants” (all the fun things in life.)
  • 20% goes towards “savings”.

List all your expenses separating them between “needs” and ‘wants” and add them up. This must be done every month to help keep you on track.

Now that you are tracking your spending and you have a budget in place; you need to determine your savings goals. You will also be able to see how quickly you can pay off debt if you have any.

Your savings goals will help you to stay on track and help to stay motivated when things get tough. 

The purpose of a 3-month savings goal is to help you through the tough times when you need it most.

A good goal to work towards is saving at least 3 months’ worth your living expenses. This emergency fund will come in handy when things do go wrong.

2. Pay off your debt 

Paying off debt has become a necessity.

You must pay off your debt – especially high-interest debt like credit cards– to ensure more wiggle room in your budget.

But how do you do that?  

A strategy that works well is the Debt Snowball Method.

Here’s how it works.

List all your debt accounts and sort them from the highest amount to the lowest. Pay the minimum debt repayments on all your debt accounts but add as much as possible extra money towards the smallest account/amount owed.

Once that account is fully paid off, move on to the next account.

Keep adding the same repayment amount to every “new” account to be paid off. That way you keep increasing your repayment amount without suffering financially. Keep repeating this process until you are debt-free.

Because you’ve been paying the minimum repayment on all your accounts and you’re transferring the repayment amount, you are slowly building momentum to pay off the bigger amounts that are still outstanding.

To make your life a little easier we’ve created a spreadsheet that will help you track all your debt accounts.

Our free Debt Spreadsheet tool will help you manage all your debt in one place.

We’ve created a simple to use a spreadsheet that calculates all your debt and tells you exactly by when you’ll be debt-free.

Get your free Debt Spreadsheet and take control of your debt today.  

3. Keep investing 

No, we don’t mean you should invest in the stock market or buy a property. You should invest in yourself!

With the coronavirus keeping everyone at home under strict lockdown restrictions, you finally have time to work on yourself.

Use this time to learn a new skill, start a side hustle or start a new business. Take advantage of the lockdown while you can.

Having a ‘Plan B’ in place can give some peace of mind, especially if you’ve been retrenched or lost your job. There are a ton of ways for you to make extra money on the side. And who knows, maybe a side project may become a full-time job.

If you’re looking for side hustle ideas check out our post How to make money from home in South Africa.

4. Keeping perspective 

If there’s one thing 2020 has taught us so far, it is that we can’t control everything in life.

But you can control your reaction to a recession or bad financial times.

It’s difficult to stay relaxed when you fall behind on bills and pile up debt. At the same time, it’s tough to stay focused when stress levels are high.

If you’re struggling to pay all your monthly expenses while covering all your debt repayments, you may be over-indebted. You need to take control of your financial situation before it’s too late.

Contact us today. We can help you sort out your financial situation by offering you reduced monthly repayment and consolidate all your debt account so that you only make 1 monthly repayment.

Speak to one of our consultants today and get the help you need.

Take control before it’s too late!

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We look forward to the opportunity to get you debt-free!

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