So its official: we are in a recession. Now what? During an economic downturn it is essential to practise both corporate and individual safe credit management to minimise the risk of financial losses and perhaps avoid turning a speedbump into a brick wall.
With the recent plague, huge material cost increases across many essential industries, massive changes to how we work, increased unemployment coupled with staff shortages (a strange dichotomy indeed) huge cost of living increases across-the-board the economy has clearly taken a hit and this has negatively impacted people and businesses alike.
However with safe credit management practices individuals and businesses can have a much better chance of keeping their finances in check during these tough times and therefore make recovery easier, cheaper and less stressful.
Here are some safe credit management practices to help you manage your finances during a recession:
Manage your cash flow
Cash flow management is crucial during an economic downturn. You should keep an eye on your accounts receivables to ensure that your clients are paying on time. Late or unpaid receivables can cause cash flow problems, so it’s essential to follow up on overdue payments promptly.
Moreover, you should also manage your accounts payables by negotiating payment terms that suit your cash flow before any amounts are overdue. Often you can find some very good savings by simply going through your bank statement and culling unnecessary expenses.
I followed my own advice and found nearly $100 per month savings by cancelling the insurance on a car I haven’t owned for over a year, cancelling several subscriptions to software that I no longer use and deleting an old Netflix account as I get one free with my phone plan.
Shop around for suppliers – savings are everywhere to be found, you just have to look.
Monitor and protect your credit score
Your credit score can significantly impact your ability to access credit during a recession. A good credit score will help you secure loans at more favourable rates while a poor credit score can lead to higher rates or being denied credit altogether. It’s essential to monitor your credit score regularly to identify any discrepancies or errors that may be lowering your score. I have seen peoples credit score decimated for 5 years; this may have been the case needlessly if they had sought advice and had a more strategic way of thinking.
Prioritise your debts
During a recession it’s vital to prioritise debts to ensure that you can meet essential expenses. Prioritising your debts means focusing on paying off the most critical debts first such as your mortgage or rent utilities and food. Once you have taken care of the essentials you can then focus on your other debts. As always, communicate with creditors if there are relief provisions available (income insurance, hardship)
Build an emergency fund
Building an emergency fund is an effective way to manage your finances during a recession. An emergency fund can help you cover unexpected expenses or help you get through periods of reduced income. It’s essential to build an emergency fund even if you have other savings or investments because those may not be easily accessible during times of crisis as we have seen in other countries, such as the Greek economic crisis.
Avoid new debt
During tough financial times it’s so easy to think that a temporary influx of cash is the answer, which may well be the case, unless you are borrowing from your future self. It’s best to avoid taking on new debt unless it’s absolutely necessary. Taking on new debt can add to your financial burden and make it even more challenging to manage your finances in later times. It’s better to focus on paying off your existing debt using a “domino” debt payment schedule and building an emergency fund.
Often recovering from the choices made trying to get out of a situation is far more difficult than recovering from the situation itself.
Avoid opportunity vultures
During economic hardship the charlatans come out of the woodwork: the, “join my team and make thousands of dollars for almost no work a day!” Of these “wealth building” multilevel marketing schemes (that may or may not resemble certain Egyptian monuments) very few ever make anyone wealthy, other than those at the top. With any opportunity, research and due diligence are your best defences against potential loss.
In conclusion, safe personal credit management practices are essential for survival during a recession. Managing your cash flow, monitoring your credit score, prioritising your debts, building an emergency fund and avoiding new debt are essential practices that can help you navigate tough economic times.
By implementing these strategies, you can keep your finances in check and prepare yourself for any challenges that come your way.
Just a thought.
Related: Don’t lose hope, just be prepared
