When times get a little, or a lot tougher economically, we often start thinking about our finances first. As working women and mothers, many of whom are the primary breadwinner in charge of the finances of our house, or on the other end of the financial spectrum, suffer from not being involved enough in the household’s finances, knowing how to manage our finances and budget during challenging economic times is crucial. Not only does the welfare of our families depend on it, but our own ability to thrive and not just survive is also linked to how well we can maintain and grow ourselves financially.
As an immigrant coming to school in the United States, I had to learn very early on to budget in an effective and often even creative manner. Knowing how to stretch a dollar was a necessity as I grew up into adulthood. Growing up in a one-parent household in SenegaI, I watched my mother budget in an efficient way so as to keep food on the table, clothes on our backs and even private school tuition paid. That’s where the foundation of my financial knowledge started, and continued into my educational background as an accountant and Certified Public Accountant (CPA).
So how do you budget effectively when tough times happen? Here are a few principles I’ve learned and kept on using to adequately handle my finances during challenging economic times:
- Don’t wait for tough times to budget for tough times
Budgeting for difficult economic times happens before the challenges even arise. This means getting in the constant and consistent habit of budgeting. One budgeting rule that I often follow is it 50/30/20 rule. According to this popular rule, we are to spend 50% of our income on essentials, 20% on savings including investments, and 30% on everything else. While there are variations of this rule depending on each individual’s situation, the main principle here is to develop a consistent habit of giving your money a place to go, and enforcing the discipline to save resources over time.
- Categorize your money
I once heard from someone that money that doesn’t have a name is money unloved. In other words, if you don’t assign your money a qualifier and a job, you have more chances of losing it. In a culture where we’re so used to instant gratification, where we can purchase anything at the click of a button, it’s never been easier to lose track of your spending and hence your money. This is why it is so important to categorize your money as soon as it lands in your bank account.
I like to assign my money at home as soon as I receive it. By home, I mean specific accounts destined for given purposes. While some bank accounts are for general spending or savings purposes, others are for longer-term purposes, creating an investment or dream vacation fund, for instance. I have found the practice of assigning my money a home and labeling my accounts as specifically as possible, allows me to avoid over-spending while increasing savings, especially in tough economic times.
- Shift your mindset.
Many of the challenges we face during tough economic times are not just related to money but also, and most importantly, to our money mindset. For many of us, managing our money during tough economic times turns out to be a painful exercise, because we haven’t made up our minds around our finances. Making a conscious decision to save money, or to reach a certain financial goal, is highly dependent upon our mindsets. The good thing about mindsets, thankfully, is they can be changed.
Throughout the many challenging economic periods of my life, I have taught myself to think about money not as a scarce, but an abundant resource. This has allowed me to feel less powerless in the face of rough economic times, and to keep working at bettering my money habits and mindset.
Another mindset shift that has been really important in my experience has been too learn to distinguish oh between my wants, needs and dreams. By order of impact, I have made it a habit to prioritize essential needs and dreams, and be especially vigilant around wants. Very often, our wants are punctual and not really reflective of what truly matters or has the longest-term impact. Compare wanting a $1,000 brand name purse to a lifelong dream of starting a business, taking a dream vacation, or retiring our spouse or parents early, for instance. Funding our dreams almost always ends up providing a greater return and satisfaction in the long run.
All in all, tough economic times are an excellent opportunity to train ourselves to manage our money more effectively. As a matter of fact, managing our money in difficult times should not be all that much different from managing our money at any time. The same principles apply, albeit with some level of variation, depending on our personal circumstances and environments. As such, learning to budget before tough times arise, assigning our money at home, and changing on money mindsets are the three most essential tools to effectively budget our money when crisis hits.
Now let me ask you, what are the tips and tools do you recommend to manage your money and budget effectively during top economic?
With Gratitude,
The Corporate Sister
