Managing Your Money During Crisis
tips on managing yourself in general.
Right now, we are collectively facing a global recession. The situation started last year when the complicated American Repo Market showed signs of cracks. Now those cracks have begun to show stress.
The Federal Reserve and US Government have attempted to patch over the cracks using stimulus, helicopter money, the lowering of interest rates, repurchasing of bonds, and their favorite trick: printing money out of thin air. It hasn’t worked and is unlikely to work. Just look at how low the US stock market is right now for factual evidence.
Nigeria, where I live, is no different as things keep going down the drain yet we all keep hope alive.
Every time they pull out a new tool to use, the stock market reacts negatively. Digital assets and even gold are reacting the same way — going down. For those of you who didn’t study finance and don’t understand monetary policy, there are seven places you can put your money:
Physical cash in your wallet
Cash held in the bank
Gold
Assets stored in digital wallets
Stocks
Bonds
Real estate
Your percentage split between each of these seven categories is referred to by bearded men in finance as “asset allocation.” This mix changes during good times and difficult times like right now. Managing your money during a global recession comes down simply to the mix between these seven categories. It literally is that simple to understand.
I am going to share with you things you can do to thrive during this season.
Please note that this is not a financial thread.
Do nothing if your emotions flare-up
Emotional decisions in a recession are a bad idea. Why? Fear is at an all-time high during a recession and that is the worst way to react and protect your money.
If you feel emotional, start with doing nothing.
Let your emotions subside and turn off the news. Fear causes you to think irrationally and that looks like this:
Listening to financial gurus on Youtube
Asking friends who have no idea about money
Betting big
Making risky choices
Doing nothing is a highly underrated strategy in recessions.
Selling locks in your losses
There is one idea people completely forget in a global recession: you only lose money if you sell your assets/investments. Selling locks in your losses.
If you buy a particular asset, hopefully, it’s because you learned about that asset and made an informed decision. Going against all the research and time you put in to make that investment decision is undoing all your hard work.
Add safe havens
A safe haven in a recession is also known as gold. When fear is rampant, people buy gold as they can hold it themselves and it’s a scarce resource that can’t be destroyed by inflation or money-printing governments giving away what looks like free money to its citizens. Nothing is free during a recession, but you already knew that.
How much of your money is put into a safe haven like gold is up to you. Well-known finance gurus with a proven track record such as Ray Dalio,(you should check him out) recommend 10% of your money. You might be wondering why I didn’t list cash in the bank as a safe haven. The trouble with cash in the bank is that it’s not your money. If the bank has a financial problem, similar to the one we faced in the 2008 Global Financial Crisis, you become an unsecured creditor of the bank. If they go down, some or all of your money could be used to bail them out. Forgive me but I am a cryptocurrency evangelist.
Keep calm
The key to managing your money during a recession is to practice being calm. Here are some practical strategies:
Read books that are not about finance
Escape with movies that take you to another world
Meditate using your favorite app (Calm works well for me)
Breathe deeply
Netflix and chill if your mind is racing a million miles an hour
You make stupid financial decisions when you’re not calm, which causes you to work more hours, to earn money doing work you may not enjoy.
Don’t throw away your life savings because of your mental state. Breathe.
Too much greed will screw your future
The biggest mistake people make in recessions is to get greedy. Contemplate that you might lose your job or the business that provides you with 90% of your freelance income could go down.
Sit on the sidelines in cash if you must
Being in cash has its advantages in a recession. If you have no idea what to do, sit in cash. Take it easy and de-risk yourself. Hoard physical cash, or spread cash amongst multiple banks.
A global recession is tough to face. If you’re not used to them or have forgotten the last one in 2008, they can take you by surprise.
Recessions can turn your world upside down and that can be an opportunity to thrive.
Take it easy out there. Manage your money carefully and don’t be afraid to not do anything. Keep a bigger buffer of money than you think you need to.
And don’t forget: life is about more than how much money you have in your bank account.
If you manage your mindset in a recession, you can manage your money.
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