4 Things to Do During an Economic Downturn
In my lifetime, I have seen three major economic downturns: The first was a combination of the dotcom bubble burst and 9/11 in 2001; the second was the Great Recession in 2008; and the third, the coronavirus pandemic that slowed down the economy.
In each economic downturn, the stock market dropped considerably, many found themselves out of work, and the government took extraordinary measures to provide benefits to citizens, stimulate the economy, and help save businesses and corporations.
Whenever our country has faced a recession, which is technically two consecutive quarters of negative growth, we have always been able to bounce back. It can be challenging to get through an economic downturn, and debt only makes it more difficult.
I want to share with you four things you can do when the economy slows down, so you can protect your family and make the best out of a bad financial situation.
1. Create a budget
I cannot stress enough how important having a budget is. If you don’t know how much money you have coming in or how much your bills cost every month, there is no way to get ahead.
You need to have a spending plan so you can be confident you have enough income to pay your bills, and you have a budget calendar to know when your bills are due and what paycheck will be taking care of those bills.
I tried many budgeting methods but failed each time. But, one day, everything clicked for me. I took pieces from three different plans to create my Budget-by-Paycheck Method. I combined principles from the Calendar Method, the Paycheck Method, and the Cash Envelope Method.
Here are some of the highlights when creating a budget:
- Track your spending
- Identify your priority bills
- Calculate your variable spending (or discretionary income)
- Set up your cash envelopes
- Use a bill calendar, so you know when they come due
- Create a debt repayment plan
2. Cut expenses and live within your means
When you do all the homework necessary to create a budget and you use my visual method to track your spending, then you can start looking for ways to cut your expenses.
The real and the most important reason to track your spending is to create financial awareness. If you don’t know where your money is going or how you spent it, you can’t identify which habits you can change to make your money work for you.
I’ve said it before, and I will say it again: Your spending habits identify your financial priorities.
When we are in the midst of an economic downturn, it becomes imperative we protect and conserve what we have. We might have to give up Netflix and see what’s available on YouTube. All of the major networks streams shows on their websites, so we can still get some entertainment. Your library might have a streaming service or loan DVDs as well.
Several apps and services to help you cut expenses and save money
- Ibotta is the No. 1 app to help shoppers save on groceries and earn cashback rewards. Download Ibotta to save on groceries and claim your $20 welcome bonus.
- Fetch Rewards allows you to earn rewards points by scanning your receipts. They work directly with popular brands to save you money on different products every day.
- Trim is an automated personal finance assistant you can download for free. It looks for ways to save you cash on your cable and internet bills and monthly subscriptions. When you download Trim, it searches for subscriptions you might no longer use but is still paying for.
- ElectricityRates.com offers consumers a way to potentially save on electricity costs. You can sign up for free, and you will get the same or lower rates.
- Gabi will let you know in about two minutes if you can save money on home and auto insurance. It’s not uncommon for someone switching insurance companies to save around $300 or more a year. Take a couple of minutes to sign up for Gabi and see how much you can save.
- If you have student loans, then Credible can help you refinance if it can find you more favorable terms. The initial process takes about two minutes to determine what rates you are available for you. If you like what you see, then you can fill out information specifically related to you and your student loans. Credible is free, and you will not pay a service fee, a loan origination fee, or prepayment penalty.
- While I am an advocate of paying off debt and not incurring new debt, in the right situation, it can be beneficial to refinance credit card debt. Credible also offers personal loans, and they start as low as 3.99% APR (but go much higher). You will know within two minutes if you can get a rate lower than your credit cards. Check out Credible to see if it makes sense for you to refinance or consolidate debt.
When you start tracking your expenses, look for items you can cut back on or eliminate. And spend some time to see if these apps and services can help you reduce your expenses. Every little bit helps.
3. Diversify your income
For a long time, I worked my day job as I focused a lot of energy on The Budget Mom, whether it was early in the morning or late at night. While I didn’t set out to start a business, I did start earning money and diversifying my income with The Budget Mom.
Even before starting The Budget Mom, I learned how to do photography and started photographing real estate for sellers. I chose to do this because I could essentially choose my own hours, and I could take my son with me.
Having side hustles is a good way to earn extra income. I have many friends who work as freelancers, and their pay comes from several sources. So, when the economy enters a downturn, they don’t lose all of their income.
If you can earn money from multiple sources, then you stand a better chance to withstand an economic downturn.
I want to mention just a couple of opportunities here (be sure to read the other 18):
- VIPKid allows people to earn up to $22 an hour teaching kids in China how to speak English. VIPKid is a leader when it comes to working remotely (meaning you can work from your home), and you can earn a decent second income when the time is right for you. Sign up for VIPKid to earn up to $22 an hour.
- Look for all kinds of jobs with the Steady app. You can find jobs that allow you to work from home; you can find freelance writing jobs, and you can find call center work that you can do from the comfort of your own home.
4. Reanalyze your financial goals
During an economic downturn, it's important to remember that it's ok to adjust your financial goals. If you've been focusing on paying off your credit card debt, for example, maybe you should start focusing on increasing your emergency fund. Don't get discouraged if you're having to stop debt payments or working towards your other financial goals. Remember, this is only temporary, and what you change now in your life could save you from relying on debt in the future.
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Bonus tip: Invest if you have the risk tolerance
You will have to decide if investing is right for you, but let me share what others have done. When the coronavirus started to impact the economy and investors got scared, the stock market dropped. A friend of mine quickly called up his financial advisor to invest more money in his 401(k) because, in his mind, everything was on sale. The U.S. economy is a resilient one and has eventually bounced back. He was willing to take a risk because of his confidence in the future economy despite the current financial crisis.
My friend, who happens to be a freelancer, has a high-risk tolerance and was willing to make the investment in a down economy because of the potential for good returns (he also ended up investing even more money). His financial advisor recommended investing in an S&P 500 index exchange-traded fund.
Not everyone is in a position to invest during an economic downturn, but he was because he has a budget, an emergency fund, and has no credit card debt (just a mortgage and a student loan, which he is thinking about refinancing).
I hope you will implement these strategies to help you get through difficult financial situations. Just remember, economic downturns are only temporary. That said, it's important to manage your money in a way that allows you to get through difficult times financially stress-free. I have several resources in my Free Resource Library to help you succeed financially, as well as other resources in TBM Shop.
