South Africans received the news this week that our economy is in recession or at least technical recession. While economists debate the exact terminology, it’s enough for us ordinary people to know that the economy is slow…very slow. But it is even more important to know how to manage your personal finances to make your money last longer and improve your cash flow in these tight times and beyond. Check out these tips.
- Create a budget and stick to it
A budget can be a good way to help you distinguish between the things you really need and the things you only want. It also warns you in advance if you plan to spend more than you earn so that you can make a plan and don’t have to fall back on an expensive payday loan to get you through the month.
- Track your spending
Know what you are spending your money on. Be aware that some of the little things, added up and compounded, can take a big bite out of your finances. Also, make a note of where you do your spending and how you pay. Paying with a credit card, for instance, and not settling the full balance every month, means that you give away some of your money in interest.
- Identify your problem areas
Do you buy snacks every day? Do you look for deals and then buy just to buy? Do you have a weakness for certain products? Figure out what you are spending the most on, and why. And then consciously make an effort to improve.
- Prioritise your spending and cut out most of the unnecessary
Decide what is really important to you. Now that you’ve tracked your spending and found your weak spots, you can create a spending plan that addresses these issues and makes sure that you cover the important things first. (Hint: some sort of savings has to be one of your most important spending priorities.)
- Keep on saving
During a recession, you may not be able to save as much as you would like. However, you should do what you can to set at least something aside to keep building up your emergency fund. A savings account can be just the extra you need to cope with the inevitable emergencies that life throws at us. Being able to withdraw money from a savings account to fix a broken appliance, pay for an unexpected car repair, or an extra doctors visit is better for your financial health than adding to your debt by using a credit card. Also, a recession is a good time to keep adding to your retirement fund. Adding to your retirement account can mean bigger gains later.
- Keep up to date with your loan repayments
If you fall behind on your repayments your credit score will be negatively impacted. This will not only cost you more in the long run, it can also prevent you from qualifying for future loans.
- Stop adding to your debt
Even if you don’t have money to spare for aggressive debt reduction right now, you can still stop digging the hole deeper. Use your budget and spending tracking to identify where you might be wasting money. Doing so will help eliminate the “need” to turn to credit cards. And, of course, if you have a little bit that you can use to pay down your debt, that’s even better.
- Try to diversify your income
Sell your unused stuff or try to make money from a hobby. You may not see immediate results, but starting now could provide a source of income that can serve as a safety net down the road.
- Make sure your insurance – car, life, medical and household – is paid
A car accident cannot only result in significant repair bills but also may result in injuries that prevent you from working for a period of time. Car insurance will help fix your car; disability insurance can help you meet monthly bills while you are physically recovering. So instead of cancelling your insurance, rather negotiate a lower premium.
- Visit your financial adviser for a money check-up
Together you can review your full financial picture to uncover additional areas you could save money and/or pay down debt, and discuss other strategies to help you navigate the current situation and work towards achieving your longer term financial goals.