Ways to save money in a recession

Just the thought of an economic downturn sends chills down the guts of many. Families and small business owners may not have robust financial buffers as huge companies.

The blow of an economic recession can bring a lot of devastation to goals and normal life as you know it.

Unfortunately, the recession is here with us after many months of warning and speculation. The National Bureau of Economic Research announced on June 8th that the US has officially crossed the red line into a recession.

The body defines a recession as the “unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy.”

That has been brought about by severe economic consequences from restrictions on travel to the closing down of businesses and social distancing rules.

It’s not just the USA; economies around the world are bearing the brunt of the health crisis.

Some money saving tips here may help families and small businesses to successfully recession-proof themselves.

Know your net worth

Saving is almost impossible when your targets are based on income. Net worth and income are different. You save from the former, not the latter. Your net worth is what you are left with after you have paid all that you owe.

So, to start on a robust saving plan during this recession, start tracking your net worth. You can use free tools such as Microsoft Template.

Tighten your budget

The first thing when cash flow changes should be to revisit your budget. See how much you are spending and what you are spending it on. Keep track of even small things like coffee and snacks.

As times get harder, you need to find ways to lessen your expenses.

That means removing from your budget all non-essential expenditures. Once you have data on your savings and expenses, organize your financial responsibilities in order of importance, such as gas, groceries, and mortgage.

Track your spending amounts with a credit card and find opportunities for cost savings. Try to save at least 15% of your after-tax take-home pay.

Shop for lower interest rates

How much are you paying now for your mortgage or car loan? If you took these loans several years back, you stand to save a lot now if you consider refinancing.

The latter refers to getting a new loan with a lower interest rate to pay off your current mortgage. You then start servicing the new loan with better terms.

The Fed has now lowered interest rates to 0.25%. Although that’s just a benchmark for lenders, you have a better chance of finding a lower interest loan now.

You can similarly consider consolidating all your debts into a single loan. It helps to lower your interest rate so you can save a significant amount of money.

Have clear goals

The biggest goal for savings right now, for many people, is retirement. You need a plan with calculations of how much you need to save every month from achieving your target.

Once you have clear goals, it’s possible to persevere through the recession while building adequate cash reserves for when you stop working.

On the same note, emergency savings is an equally important goal. Financial emergencies often spring out of nowhere.

These are healthcare costs, job losses, and similar expenses that could force you to dip your hand into your retirement savings.

That does not have to happen if you have an emergency fund that you regularly save towards.

Invest in the financial market

This can work well for your long term savings goals. Investing in the financial markets carries considerable risk, but it helps to diversify your savings and build your net worth.

During a market downturn like this, share prices are at an all-time low. This could be the only time that you get to afford to buy equity in top-performing companies.

Take great care, though, to put your money in companies that are well managed and with strong balance sheets.

Companies that deal in consumer staples, including groceries and those in recession-resistant industries such as cosmetics, are the best candidates to think about right now.

When you do make a move into the financial markets at this point, be sure to have the patience to ride it out so your investment can grow for many years after the recession.

Things may get even tighter than they are now.  There are still opportunities to strengthen your finances and achieve your goals. Be a smart spender, saver, and even investor.

Cut back on unnecessary expenses, pay your debts, have an emergency fund, and keep saving and investing for your future goals.