While the economy is showing signs of improvement, most Americans a still facing some financial difficulties. Dealing with a downturn is hard enough without adding additional mistakes. This is true even of people who are on firm financial ground during a recession. They can also fall for traps in the way we save, invest and spend our money.
Here are the top 5 mistakes people make during a downturn:
1. Refusing to Tap the Emergency Money
People who have a good handle on their personal finances understand the need to save for a rainy day. It’s smart to create an emergency fund. However, when hard times hit, a mistake they often make, is to be afraid to use it! They consider their emergency savings so sacred, they do not want to tap into them. The experts at the WSJ suggest viewing those funds as your reward for disciplined saving in good times. Isn’t this why you had the emergency fund in the first place?
2. Ignoring Your Credit Score
A big mistake that people make during bad times is to overuse credit cards or putting off paying bills. Those things can impact your credit score, when things turn around.
Keeping your credit scores from dropping can save you thousands of dollars over time, in interest and fees.
3. No Plan for Reentry
Even if your finances and income are stable during a recession, investors often make knee-jerk reactions during a downturn. Investors often sell out of equities during a downturn without a plan of when to buy back in. It’s impossible to tell when exactly the markets are going to recover. Take the rapid bull market since late March – you always need a plan.
Experts suggest a phased approach could be the way to go. You also might want to consider letting someone else manage the portfolio for you. Especially if you are prone to be reactive to market movements.
4. Not Talking About Money Issues
Unfortunately, when times get tough, many people take an “ostrich” approach, putting their “heads in the sand,” and do not even want to talk about financial troubles.
With the pandemic forcing millions of people world-wide into financial distress, a natural response may be to avoid conversations about money at all costs. However, the experts agree that discussing money matters with your partner in hard times can help your relationship and finances if you approach these discussions the right way.
5. Putting Career Plans on Hold
A recession may seem like the worst time to think about your future career goals. Most folks instead of thinking about tomorrow during a downturn, hunker down and try to preserve. By seeking employment opportunities, individuals can affirm their value, test the economic environment, and make an informed decision regarding their current job situation.
This also goes if you ever had thoughts of owning your own business. The experts say that while that may be your gut feeling, a recession is no time to put your entrepreneurial dreams on hold. In fact, an economic downturn may indeed be the best time to start a small business.
Government incentives are probably available for start-ups as a way to stimulate the economy. Discounts on equipment and space leases abound, and the downturn itself may create opportunities for new kinds of business that did not exist before the hard times struck.
What do you think of these money management tips during hard times? Are there any you would like to add for our readers? Please reply in the comments below.