Top 12 Financial Tips that we Can Learn from Previous Recessions

COVID-19 has changed the way we act and react to the world. Countries have locked down and the economy has suffered. With millions of people out of work and struggling to keep up with rising rent and bills, it is a comfort to know that this is not the first time the economy has crashed; nor will it be the last. Here are some tips from previous moments of economic instability that we can use and adopt to our present circumstances so that we can come out of this pandemic stronger and more financially stable.

1.) Emergency Funds are for Everyone

If you are making 30K a year or even 150K a year, I promise you that an emergency fund is a necessity that will help you sleep at night when things go wrong. As those once in a lifetime situations occur, the COVID-19 pandemic too many by surprise. Those who lost their income and had built an emergency fund, a fund where you hide money away for a rainy day, were thankful for a little bit of income to tide them over to their next job or to help bolster the income they received from the government. Although the government responded to the crisis by providing additional income weekly to the unemployed, a well-maintained emergency fund can help you survive without going into debt and without needing, if you are older, to dip into your retirement savings as this money has also taken a hit. There is nothing worse than needing to cash out investments when they are at all-time lows and you are getting pennies on your dollars. This is why having an emergency fund, usually 3-6 months of expenses, is a necessity so that when times are good, you can build it up strong, and when things go bad, you can weather the storm without fear of drowning.

2.) Stick to your Debit Card

As money becomes less and less used because of public health officials recommending that it might not be clean and helps to transmit germs from one person to another, it is better to use your debit card, not your credit card, so that you can stick to your budget. It is very easy during a financial crisis to start using your credit to help pay bills, but that will affect you long-term. Rather than credit, if you only use your debit card, and use money that you currently have, it will be easier to stick to your budget, as you will only spend money that you have and help cut down on unwanted costs. Also, by not using a credit card, you can avoid those high-interest rates that will definitely take a chunk out of your income.

3.) Making a Budget 

When something as crazy as a pandemic hits, those who have been budgeting and using their budgets to reduce their costs and increase their savings become financially safe and can weather the storm without fear. But for the rest of us, if you have lost your job or your source of income, it is important to take some time now and examine your spending habits. Is there anything that you can cut out completely? Can you negotiate your rent with your landlord? Maybe you don’t need a second car as you are not currently travelling to work everyday. Even if you are employed, it makes sense to take the time to go over a basic budget to prepare for the worst-case scenario and to make sure that there are not any unexpected surprises that sink you.

4.) Ask your Landlord for Help

One of the benefits of a recession is that it becomes a tenant’s market. This means that as recessions hit, people lose their jobs and their source of income and landlords become more willing to make a deal in order to keep some money coming in rather than trying to evict a tenant who might not have all the money ready but is willing to make a deal. Remember, a landlord still needs to pay for maintenance in his building and pay his mortgage payments. In his head, some money is better than no money and rather than having a apartment building that is empty because he evicted those who could not pay, he would rather have most tenants paying some percentage of their rent. So ask, there is no harm in asking and seeing if there is any deal that can be made. Feel free to ask if you could pay 50% of your rent this month and the additional 50% over the next 3 months so that the cost of rent is more reasonable now and it gives you some time to find a side hustle or a new full-time job if you are currently unemployed.

5.) Have a Chat with your Creditor

Similar to what was happened with your landlord, creditors are also willing to make deals so that they can get paid some money rather than no money. If you are struggling with credit card debt that you know that you will not be able to pay off, it is worth taking the time to call your credit card company and see what offers they have for you. I know that many credit card companies will allow you to transfer your debt to a new credit card where, instead of paying 19.99% interest, you get a 6-month grace period with only an interest rate of 3.99% to help you cut that debt down. Just ask, you have nothing to lose.

6.) Find a Side Hustle

If you are in-between jobs or just looking to make a bit more money to help weather this financial storm, a side hustle is a perfect way to increase your wealth. Right now, may people are looking for ways to save money and a side hustle is a great way to make more money and it is a lot easier than trying to cut costs. Check out this post on side hustle ideas.

7.) Pay Off your Debts ASAP

If you are still employed or are still making enough money to survive, take the time to pay off your debts now! Remember recessions come quickly and stay longer than you expect, they are also a wrong time to take on extra debt unless it is absolutely necessary. This would be the best time to pay down any existing debts after chatting with a creditor as you could possible pay less than 100% of what you owe as the creditor will be willing to make a deal that is in your best interest since you are able to pay now. If you have a bit of extra income, take the time to reduce your debts while you can.

8.) If you have Extra Cash: Invest!

Now, if you have paid off you debts and have a 3-6 month emergency fund that is stocked up, than you can start investing with your extra cash. Although recessions are tough times for many, there are actually incredible buying opportunities for investors when expensive stocks are on sale and where it is very well-known that the economy will recover at some point after the recession ends. All you need is some extra money to buy investments and a long enough time horizon to patiently wait for the market to improve and for you to make money from this recession.

9.) Fishing and Scamming

As were all stuck at home, with less activities to keep us busy, this pandemic has been the perfect breeding ground for scammers and tricksters alike. There are many people who are using this pandemic to their advantage by fake calling as the IRS (CRA in Canada) and/or credit card and insurance companies to get private information so that they can access your bank accounts and other confidential information to make some quick money. As we are worried about our current situation, it is happening more often that people are falling to these traps as the fear of getting in trouble or defaulting is higher during a recession than it is during a boom. So be wary of these calls and make sure you double check yourself before giving any personal information on the phone.

10.) Monopoly and Recessions

Most people don’t realize this but monopoly became very popular due to the Great Depression. This is because during recessions, people don’t have the disposable income to buy multiple games or entertainment options to keep themselves and their families busy. But monopoly did very well because it was a fairly simple game to learn and often took hours to complete a single game. This allowed families to play over a course of many days the same game without getting bored. Nowadays, board games are less the norm but the process remains intact: Netflix, for a low cost, can provide you and your family with hours upon hours of entertainment for a small monthly fee. Rather than spending lots of money or activities that might not last longer than a week, Netflix or even monopoly is a great way to pass the time!

11.) Learn to Cook Inexpensively

During recessions, its important to find ways to reduce your spending so that you can save money or put more money towards debt. One way people can successfully do this is by buying in bulk as places like Costco for goods that they know they will use (such as rice, pasta and toilet paper) or by learning how to cook with less expensive ingredients. Taken from stories about cooking during the Great Depression, many families learn to eat on reduced budgets by making food with ingredients that were in season and less expensive and to avoid eating meat and dairy products that had higher than normal prices. Others took the time to eat and make meals out of whatever canned foods they currently had in their pantries as many people purchase food throughout the year but never end up eating them as they age in the back of the pantry until they are no longer edible. Take the time to clean out your pantry and make sure to put those ingredients to good use!

12.) Becoming Bob the Builder

We all know things break at the wrong time and the unanticipated expense of having to pay a carpenter or a plumber to come fix an issue is high. Rather than waiting for an issue to happen and be forced to pay a steep price, take the time during quarantine to learn how to fix things around the house rather than calling a handyman. With resources like YouTube, it has never been easier to learn how to unclog a toilet or how to change your oil in your car. If you have temporarily lost your job, it is worth taking some of your free time to learn skills so that the next time something breaks in your house, you can take care of it yourself without having to invite an unknown person in your home.

Comments 

What would you add to this list? Do you find that some of these tips are better than others? Let me know down in the comments!