Seven simple tips to get your finances ready in case of a market downturn.
The economic impact of COVID19 goes well beyond fighting for toilet paper and pasta at the supermarket. The plunging stock market and business downturn means we could be heading into a recession, leading to much larger problems like widespread job losses, plummeting real estate value, and families losing their homes.
While there’s nothing we can do about an impending recession, there’s plenty we can do ahead of time to ensure that we’re prepared for the worst.
1. Get on top of your of your services & utilities
When was the last time you reviewed bills such as your mortgage, phone plan, car insurance, internet, or electricity? Regularly reviewing your bills is an easy way to save hundreds of dollars a year, and if you’ve been with a provider for a long time, chances are they’ll cut your monthly costs so they can keep you as a customer. Refinancing a mortgage alone could save you tens or hundreds of thousands of dollars over the life of the loan. Some banks are even offering significant cash bonuses for refinancing! However, we recommend speaking to a financial advisor before making a decision like this.
2. Reduce your debt
Here’s a shocking stat: Australians have the world’s second-largest household debts, hovering at 120%of the GDP. We’re second only to Switzerland, and we’re not far behind.Household debt is a huge problem for Australians, with a quarter of households having three times more debt than their annual disposable income. This will only get worse in a recession, which means now’s a good time to reduce your debt as much as possible. If you can reduce your debt, as well as try not to increase it, you’ll be in a much better position financially if we’re hit with a recession. The quicker you can pay off credit cards and personal loans, the less money you’ll be spending on interest.
3. Flip it!
Have a look around the house – you’re bound to have a whole heap of stuff that you’re not using. The general rule of thumb is that if you haven’t used it, touched it or worn it in a year, then it’s time to get rid of it. This includes clothes, shoes, old electronic sand appliances, and even homewares. You may not think your stuff is worth much, but even selling 10 items for $10 a pop turns into $100 of tax-free money that you can put towards paying down a debt or paying a bill. Thanks to platforms like Facebook Marketplace, Gumtree and eBay, it’s never been easier to sell old things quickly.
4. Delete those delivery apps
The rise of convenience services like Uber, Deliveroo and Airtasker means we’re outsourcing a lot of tasks that our parents or grandparents wouldn’t dream of. The cost of getting other people to do things like drive us around, clean our house and cook our food can be high, and it needs to be weighted up against the benefit of saving money by doing it ourselves. Frugal habits go beyond the typical outsourced tasks, and include growing your own fruits and vegetables, doing your own beauty services, and walking, biking or taking public transport instead of catching a ride-share services.
5. Meal Prep
Even needs like groceries can be cut down on. As tedious as meal-planning can be, it’s a great way to plan ahead and maximise the ingredients you buy – and reduce the likelihood of splurging on overpriced items you don’t need. You can also look at planning your meals around meat that’s currently on sale, or planning in meat-free days.
6. Evaluate your needs
A sure-fire way to cut down on non-essential spending in a recession is by learning to distinguish between needs and wants.As humans, our needs are simple: a roof over our head, clothes on our back, and simple food to keep us nourished. This extends to household bills like rent/mortgage, utility bills, healthcare services and transportation. This It doesn’t mean you need to live like a hermit, but re-consider whether you need all of the discretionary expenses you’re currently spending money on. If you are still intent on purchasing certain consumer goods – check out a cashback program like FairRewards which allow to earn some extra cash straight into your super when you shop online.
7. Understand how you spend your money
It sounds simple, but if you don’t know what you’re currently spending money on, you won’t be able to make cutbacks and changes effectively. Many banks now have features that group your transactions between essential and non-essential (also known as discretionary) expenses, and this can be a quick way to see where your biggest spending areas are.