I hate to say but this time it’s real! The global economy is heading towards financial recession, and there’s more bells and whistles than ever before. Keeping global economies aside, what can you do to keep yourself safe? The simplest answer is to improve spending habit.
Hence, in this post, I’ll list down the 9 spending habits you can follow to protect yourself from financial crisis. I can be so sure about these 9 simple spending habits because they have helped me in my bad days.
Ready? Let’s dive in….
(1) Budgeting
Honestly, in my personal experience, budgeting is one of the most important and critical things for a balanced life. Even the best so-called finance guru fail to make a suitable budgeting plan which later comes back to haunt. As you might already know, a financial recession means everything goes down. And, it’s not just finance.
When the global finance situation is fragile, the best thing you can do to keep yourself safe is to spend money in an extremely calculated way. You cannot take the risk of overspending. That’s where budgeting comes in as a lifesaver. You create a detailed plan of your income and expenses. You allot money at something like “watching movie(s)” and don’t cross the set amount.
In the simplest terms, budgeting means: Keeping a balance between your income and expenses. If you spend more than your expense, you’re in the red. Being economically fragile is one thing that you cannot afford to be at this moment. Budgeting also helps you in creating an emergency fund. Emergency fund, as the name suggests is the money you ONLY use in the worst financial situation.
(2) Prepay Debt
For a business, taking a loan may be necessary to expand their business, but it’s not the same with individuals. One of the greatest investors of all time, Warren Buffett hates debts. And I understand why he says so. Taking a loan is a necessary evil for a business, but it’s insanely risky to manage. Why? Suppose you have a business and you take a loan of $100K at 10% Interest, you’ll theoretically have to make more than 10% on $100K to efficiently manage the debt.
In case of individuals, since they are mostly dependent on fixed income, it becomes a challenge to manage loan and personal expenses. So, if you’ve taken a loan for whatever reasons, it’s best if you prepay them. Forget about credit score for now. Focus more on how to survive this financial recession.
You’re luckier than most people if you’ve never taken a loan, but if you’ve fully paid off a loan before, you feel a huge sigh of relief don’t you? This is not just you, it’s common with most people who have taken loan in the past.
(3) Opt For Auto-Savings
Auto-savings is like the forced way to save money even when you don’t want to. I have tried this before and have never regretted it. Yeah, initially you’ll feel frustrated that you cannot spend the money, but when crisis hits, you’ll enjoy the benefits.
Let me tell you the difference between Savings and Investing. You won’t grow money by Saving it, but it’s less risky. On the other hand, Investing is what makes you real money, but it’s more risky. Now say, during a global financial crisis which one would you choose? Saving or Investing?
Now, you don’t have to go overboard and save 90% of your monthly income. That would be problematic and unnecessary. But you sure can choose to save 10-20% of your monthly income. Trust me, auto-savings have bailed out countless people when they really needed money. Though I hope you don’t have face any such adverse situations, but you can try for yourself and see.
(4) Buy Thrift Store Products
Let me clarify one thing: There’s no shame in buying from thrift stores. I had to write this before moving forward because some people think that it’s humiliating to buy from a thrift store. NO! it’s not. Thrift stores sometimes attract more rich people that your regular showrooms. Don’t believe me? Few years ago, the found of IKEA Ingvar Kamprad said in an interview that he buys second-hand clothes from thrift stores to save money.
If a Billionaire buy used clothes from thrift store to ‘save money,’ why can’t we? You can get great products from thrift stores and it also helps you save money.
It’s nice to focus on saving money and spending less on non-necessary things, but you have to wears clothes don’t you? Hence, when it’s time spend, visit your nearest thrift store and buy yourself clothes that come under your budget.
(5) Stop Credit Card Use
I can visualize your raised eyebrows 🤨! And you might also think: Stop Credit Card Use? This dude is ridiculous. It’s impossible to stay alive without a credit card. It’s valid to a point, but one thing that most people forget: You have to pay your credit bill from your pocket. Nobody is going to pay the bill. You’re only delaying the payment by one month. Which is absolutely dangerous during a financial crisis.
Credit cards are a boon when financial situation is healthy. It’s not during a financial recession. It’s pretty easy to understand why. During a financial recession, prices of your everyday needs go up, and income either remains constant or goes down. At that point if you are dependent on your credit card for your daily spending, you face a high chance of overspending.
And once you overspend, you’re stuck in a perpetual cycle of defaulting credit card bill payment. You’re in the red! Which means, you have spent more than you’ve earned. That’s why I urged you create a strong budgeting plan right at the beginning. Credit card companies are also at fault here. They attract potential credit card users with short-sighted offers, and use “cashback“ feature to retain them.
Of course I’m not asking to completely abandon credit card forever. But, stay away from it during a financial recession. It’ll really help you in the long run.
(6) Keep Money Aside For Investment Opportunity
From disaster opportunity springs. These four words have stuck with me ever since I started reading about finance. But why am I suddenly being so philosophical? Because not everything is finished during a financial recession. One thing that sure falls during every financial is the stock market. People need money, and the negative market sentiment convinces them to sell shares. In the financial world it’s often called panic selling.
Keeping aside all the underperforming companies, a negative market sentiment can also force a good stock to crash. That’s the opportunity serious investors wait for. On paper, a good company may be performing well, reporting profits and all, but since the stock price is at all-time-low, people think that the entire company is heading for Chapter 11 (Bankruptcy).
If you have some extra money that yo can risk to lose, this is the best time to risk it all. Of course, you’ll never know the bottom of a stock, but if you can buy a great company at 50% less price than what it usually trades in, you’ve already done a nice investment. Yeah, but remember one thing: Don’t put all your eggs in one basket.
(7) Switch To Homemade Food
Switching to homemade food seems like a funny idea, but we have very little idea how much people like to eat processed food. Why? Simple, because it’s easier (and faster) to eat outside than cook at home. Thanks to the hustle culture, we don’t even have time to make our own food. Sigh!!
Homemade food is always healthier (tastier sometimes) than your nearest burger shop. In fact, you get more nutrients in homemade food than a burger. If this wasn’t enough, you get more return on investment (if you want to call it) from a homemade food than from a burger.
(8) Diversify Income Stream
I never knew that ancient saying “Don’t put all your eggs in one basket” would be so valid later in my life. Trust me, this ancient saying will become even more relevant in the future with all the rising uncertainty all around us. It’s sad to see but people are working more than two jobs and still aren’t able to make their ends meet.
This has been happening before recession hit! Wonder how bad it will be at the peak of the crisis. So, what should you do? This is when upgrading your skills help. If you’re skilled at your job, you can use it for more money-making opportunity.
You can become a freelancer, start a business, or demand a promotion that would bump up your monthly earning. Side-hustles also helps, but most of them are either scams or don’t pay enough to make your monthly ends meet.
The fastest way is becoming a freelancer. The pay might be less initially, but if you’re good at your job, you’ll quickly climb the ladder. I have seen people who started their Fiverr account only for fun, only to take it seriously and quit their job because they were making 10x more than their job.
These are the few secret sauce to become a successful freelancer fast:
(a) Overdeliver
(b) Keep prices lower than your competition
(c) Engage with your customer
(d) Be hyperactive
Trust me, if you follow these four suggestions, you’ll become a successful freelancer in no-time.
(9) Allot Emergency Fund
Finally, allot a small portion of your monthly earning as an Emergency Fund. Setting aside some money as an emergency fund helps you with unexpected expenses. Technically, it’s called a liquid asset, that is usually kept in your savings account.
As the name suggests, an emergency fund is only used when there’s a critical emergency. Mostly medical emergency. This is the kind of fund you hope to never use. Yet, uncertainty is one thing that humans have repeatedly failed to beat.
No matter how much fund you allocate, that liquid asset is going to give you one thing: Mental Peace and a sense of Financial Security. Nothing beats a stress-free life when everything around you going haywire. The cash in your savings account helps you realize that no matter how bad the financial situation around you is, you won’t have to sleep empty stomach.
