O.K let’s talk money. In this post we’ll dive in to ways to mindfully prepare your finances for recession, maybe even a depression. We will start off by touching on the negatives, before leading swiftly on to the positive actions you can take to move forward.
Your Personal Finances
Although the general analysis here in the UK is a little behind that in the US, there is no doubt, the UK and large parts of Europe are already experiencing a depression. A depression is generally considered to be far worse than a recession. Rather than a couple of months, a depression is an ongoing, sustained, long-term downturn in economic activity in one or more economies. Meaning, a depression is deeper and longer lasting than a typical recession. For many COVID-19 brings along job loss, reduced income or much worse. Now is the time to begin to mindfully prepare your personal finances and that of your small business, for what could potentially be a challenging period ahead.
The best place to start is at home. You need to sit down and asses your personal finances. Here are three major personal finance factors to consider ahead of potential job loss or a reduced income.
Build An Emergency Fund
This is one of those topics that a lot of us dread talking about. You know you should have one, but you just never quite got around to saving one? – the struggle is real. Now there is no time to delay, you need to be squirrelling away your nuts for those potential rainy days on the horizon. It is generally advised to have between 3-6 months of living expenses saved. Have cash set aside incase you lose your job or your income is greatly reduced. If saving 3-6 months of expenses seems like a country mile away from your reality, start where you are at, do what you can.
Get Control Of Your Debt
Needless to say that having fewer debts will reduce your stress levels. There are several well-known methods used for getting rid of debt. When you sit down to go through your financial situation, you need to look over any outstanding debt. List your debt from largest to smallest and make a plan for gaining control. You could either adopt the Avalanche debt payoff method or the well known Snowball method. The Snowball method is when you list each debt small – large and begin to pay off each lender, the momentum of seeing those outgoings disappear will keep you motivated. Establish the terms set out by each lender. Look at wether there is any flexibility on the amount you have to pay each month. Knowing where you stand will help you to get clarity of your situation, feel empowered and avoid becoming overwhelmed.
Simplify Your Expenses
Following on from the last point, you will want to simplify your expenses. Review all of your current outgoings and put a stop to the pointless stuff you’re paying for. Write yourself a budget and stick to it. If you’ve been spending willy-nilly, this is certainly the time to grab hold of the reigns and slow down. Split your budget into non-negotiable outgoings like your mortgage and utilities, then have a list of the flexible outgoings like food and entertainment- this way it easy to define your needs and wants at a glance. Having a clear list of outgoings will help you to spot areas that you can potentially reduce costs, like maybe you don’t need to be paying for Amazon Prime or for several entertainment packages? These small monthly savings will help you to build your emergency fund much faster, which will in turn reduce stress levels.
Your Small Business Finances
Reward Your Loyal Customers
When first launching your brand, it’s only natural that you want to reach the biggest possible audience. However, the cost of each conversion is an integral feature in the formula for success. Diluting your content to suit a larger audience could alienate your loyal customers. Know your niche and tailor your efforts – products and marketing – accordingly. Reward your loyal customers, ask for their feedback and reviews. Short term, you’ll save on marketing costs and gain more conversions from your existing customers.
Look For Income Opportunities
For those that are full-time employed, as regular life ticks along, chances are you’re probably not out looking for your next big break, you’re comfortable in work and don’t want to rock the boat. However, during a recession, you need to prepare to be flexible as all bets are off! If you’re employed, take some time to update your resume, portfolio and start browsing the job market.
If you’re self-employed/ freelance, you will want to consult your list of previous clients. Send out a polite email re-introducing yourself and let them know what recent work you’ve been doing. Getting back in touch is the best way to stay fresh in potential clients minds when they are next on the look out for help.
You might want to start a side hustle online for additional revenue streams. Now is the time to start earning extra money and building your emergency fund. Improving your financial wellness will help you to sleep better and feel less anxious, so don’t put it off or ignore it, be proactive.
Consider Your Current Set Up
If you’re currently running a small business and have premises, consider your current set up. Do you need to move warehouse and down-scale operations temporarily? This might be a harsh reality, but if this is the scenario you are faced with to make savings then, set up a smaller operation and invest in equipment that is built to last like industry-leading factory floors and invest in security to keep your stock safe, like the very latest remote CCTV and alarm systems. This will save you time and money in the long run. Once your company has weathered the recession you can then take your equipment with you to your next bigger, better facility. Maybe you have an office or studio, perhaps you need to relinquish the keys to the premises and work from home. This will halo to reduce in rent and might keep your business ticking over for longer. There’s no shame in downsizing temporarily!
Although it can feel tough, recessions can be times of great prosperity and provide many opportunities for change. If you have cash, you’ll be in a great position to invest in real estate or shares. If you’re out of work or find you have more time on your hands, you can sit and reevaluate what you would like to do in the future and to try turning your hand to new things. It is important to keep calm and prepare your finances. Having weathered the recession back in 2008, when work dried up altogether and I had to leave my flat in London and retreat back to my parents. I know that from tough times good things can emerge and this downturn too shall pass.
“Look forward rather than backwards – we all have mistakes we’ve made financially in the past. Forgive yourself for these and instead, look to the future.”– Ellie, This Girl Talks Money