How to Manage Your Personal Finances Through Tough Times

Figuring out how to manage your personal finances is never easy.

Most of us didn’t get a formal education in money, and even majoring in something like business or finance doesn’t help much when it comes to personal finance.

If we learn anything, it usually comes from our parents — and that might not be a good thing.

If nothing else, we can try and Google our way to a financial education… but that’s a bit like trying to drink water from a fire hose. There’s a ton of information out there (and, this being the internet, a considerable amount of it isn’t good data or even true).

Now, add something like… oh, I don’t know, a global pandemic into this mix, and figuring out how to manage your personal finances can suddenly look absolutely impossible.

But there is good news, even in tough times. And here it is:

• Learning to manage your personal finances — and then managing them well — is possible.
• It’s not about doing anything super fancy or complicated. It’s about knowing the fundamentals and then mastering them.
• There is one big secret to succeeding with your finances, even in hard times — and we’re sharing that below.

What we face today feels scary. It is scary. But the fundamental laws of personal finance haven’t changed.

We can use those to guide us forward — and add on some specific guidelines that are helpful in times of crisis.

If you want to understand what you need to do right now to best manage your money, especially in what can seem like dark and uncertain times, you have a good resource on your screen right now. Let’s dig in.

Start Here: Focus on What You Can Control

This is the big secret mentioned in the list above: focus on what you can control. If you can master this, you will master any situation you find yourself in.

We cannot control the overall condition of public health during a pandemic. We can, however, control whether or not we follow the guidelines put in place to keep ourselves and others safe.

We cannot control the overall market reaction to current events and crises. We can, however, control whether or not we stick to our investment strategy and continue to carry out the plan to get us to our goals.

We cannot control what the overall economy does and how that might impact our individual jobs. We can, however, control whether or not we prepare for an emergency before it happens.

These are just a few examples, but they can get you thinking about what you can and cannot control in your own life.

This concept of focusing on what you can control brings to mind this quote attributed to 8th-century Buddhist monk Shantideva:

“If you can solve your problem, then what is the need of worrying? If you cannot solve it, then what is the use of worrying?”

Before you do anything else, consider what falls within your ability to influence, act on, and do something about.

We all have limited resources. Be it time, energy, or money, we have each in finite amounts. By focusing on what we can control, we make sure that we direct these precious resources in the most productive, effective, and positive ways.

With that in mind, the following tips on how to manage your personal finances — during a crisis or any other time — all fall into the realm of what you can proactively do to protect yourself and make progress toward your goals.

Evaluate Your Spending

Your cash flow is made up of money coming in and money going out. You can influence both sides of the flow by focusing on income and expenses.

Let’s start with spending.

The very first thing you can do to manage your personal finances in tough times is to tighten up your discretionary spending. This means cutting back on all non-essential purchases.

In other words, if you don’t need it, then consider doing without for a period of time.

This might sound harsh and very much not fun. No arguments on that from us here. But keep a few things in mind:

• You can cut back on discretionary spending in degrees. If you’re really concerned about your current situation, you may need to cut back severely. If you’re slightly worried, you can start by simply reducing how much you spend rather than cutting things out entirely.
• It’s temporary. We’re talking about how to manage your personal finances in tough times… not all times. Cutting back now might be a less-than-ideal but critical step to take — and what allows you to get through to the other side of a crisis.
• You get to decide what stays and what goes. There is no one right way to make a temporary budget cut… so if you really love and value spending on something in particular even though you know you don’t need it, that’s okay. There’s no wrong or right; it’s just about what you value and prioritize.

A good practice we advise for anyone who feels concerned about how to best navigate an emergency or unexpected event (like job loss or reduction of income) is to build a worst-case scenario budget that you can deploy anytime.

This is a version of your current budget, but stripped down to bare bones or essentials (or mostly essentials with a few critical discretionary purchases accounted for, too).

Ideally, you can build your worst-case scenario budget during a time when you don’t need it. You’ll likely have the time and space you need to think rationally and make good choices with what you cut and what you keep.

Then, you can have it ready to roll in an emergency situation. But, we’re currently in an emergency situation with this pandemic, so if you didn’t have a stripped-down budget ready to go, use these tips to guide your decision-making when re-evaluating your spending:

• If there’s anything you normally spend on but can’t at this time (like fitness classes, brunches with friends, shopping at your favorite retail store, etc) take that money and move it to savings. This will provide more padding and additional security as this situation continues.
• Hold off on any big purchases (or major commitments) until you feel more certain or stable about the near-term… even if you come across deals that seem too good to pass up. (You can be a bit more flexible about this rule, depending on your financial position. The more liquidity and established wealth that you have, the less likely you are to be impacted by a small loss.)
• Start making it a practice to get very intentional and mindful about the other spending you do. Carefully consider each purchase, track every dollar that goes out the door — and when you feel a pang of buyer’s remorse, note it. Whatever you spent on that caused the feeling is a great candidate to be cut from future line items in your budget.

Consider Avenues for Increasing Income

Now, let’s look at the income side of the cash flow equation. Usually, you have more direct control over how much you spend than you do over how much you make… but that doesn’t mean you have no control over your income.

Believe it or not, there are actions you can take to influence how much money you make.

If you own your own business, you may be able to hustle for new opportunities — or you could pivot to serve a new need during a difficult time.

If you work for a company, now may be a good time to step up and demonstrate your leadership skills or seek out increased responsibility. This experience could provide good leverage for negotiating for a raise in the future.

It may not be possible to snap your fingers and manifest more money. (In fact, we can conclusively say this is not possible. It’s gonna take a little more work than finger snaps.)

But you can exert some influence here. You can proactively seek out opportunities to position yourself for increased income in the near future or more earnings right now.

Just don’t expect quick fixes or get-rich-quick schemes to work. Building real wealth takes real time and effort — and you can do it. It is possible if you keep the right mindset and are willing to put in the work.

Be Proactive About Protecting Against and Planning for Emergencies

At BYH, “focus on what you can control” is one of our core mottos (which you might have guessed by this point). Another mantra we find ourselves repeating over and over?

Be proactive, not reactive.

Don’t wait around for something to happen to you, and then scramble to respond and keep up. Look at what you can do right now to get ahead of the curve and plan for the future.

When it comes to managing your finances in tough times, that usually means build a sufficient emergency fund.

Having cash reserves can make the difference between weathering a storm and being beaten down by it. We don’t necessarily believe cash is king, but access to enough liquidity to get through tough times is important.

This podcast episode covers everything you need to know about how much cash you need to keep on hand.

But when it comes to dealing with a true crisis, building up a little extra cash isn’t a bad thing if it helps you sleep better at night.

Again, if you find you’re spending less and have more available cash flow, move that money over into your cash savings to build a bigger buffer.

If, after this current situation is resolved, you find you didn’t need to use that cash on hand, you can always redirect it toward your investments for long-term growth.

Add to Your Investment Contributions

Speaking of long-term growth…

Now might be a true opportunity for you if you’re a long-term investor with goals of retirement or financial independence.

This might sound counter-intuitive, but let’s revisit our guiding theme here: focus on what you can control.

You can’t control what the market as a whole is doing. But you can control how you participate in it.

During times like these, buying into the market when it’s off a peak means spending less to purchase securities. That’s a good thing for younger investors who have the time to take advantage of compounding returns.

If that sounds crazy, remember Warren Buffett’s famous quote:

Be fearful when others are greedy and greedy only when others are fearful.

What that means in practice is buy low — when everyone is panicking about a loss of value in the market — and sell high, or when the market is reaching peaks.

Now, we don’t believe in market timing… but this periods of time in general are good to buy in. Why?

Because stocks are on sale, and if you have a 20 or 30 year time horizon, you have the ability to ride out short-term volatility to see a long-term gain.

As Ben Carlson puts it, times like these are when dollar-cost averaging actually goes to work for you. Only contributing when markets are up and you’re feeling good about them is defeating the purpose!

Don’t miss out on the opportunity to get money working for you to grow your wealth.

Want more financial advice you can actually use? Check out Beyond Your Hammock, a fee-only financial planning firm that specializes in helping 30- and 40-somethings get clarity and start building wealth.