Practical mechanics for a recession

The best financial advice I ever received was from a mechanic who told me 'you should never, ever, fall in love with a car like that'.

It wasn't love, actually, more like a marriage of inconvenience, but the guy with the spanner had a point. The car, which did still look pretty good for its age, was sucking money out of me faster than it was losing oil through that mysterious leak in the manifold.

It was a great educator, that car. For example, I learnt what a manifold was and how much it costs to replace one - three times. I should've known then that I had no business owning a 1973 Volvo 164 - no-one does - but on the upside it didn't rust.

However, it wasn't until the mechanic warned me of the dangers involved in forming emotional relationships with automobiles that I could admit the truth: what I had thought of as an asset was in fact a liability. Shifting the Volvo to its correct place in the mental balance sheet enabled me to do something about it.

In a recession everyone gets the chance to reallocate balance sheet items. Like me, most people probably do that in their heads without any formal cashflow analysis - judging by the responses to the Herald's call  for recession survival tips, ad-hoc belt-tightening is the way forward.

While the reader recession tips ranged from very funny to absolutely insane, the overall tone of the debate is that we should all stay indoors and learn how to digest sawdust. In a climate of financial fear the sensible response, of course, is to prepare a formal budget so you know what you should be scared of and which elements you can control.

There are plenty of online tools to help with household budgeting. For example, Sorted has one and a multicultural bunch in Dunedin have developed this sophisticated budgeting system that aims to add a dose of reality to your forecasting assumptions.

As Arun Abey, one of the pioneers of Australia's financial planning industry, wrote in a recent Herald article the recession forces everyone to "go back to the financial drawing board".

Or you could ask your mechanic.

 




David Chaplin

 

 

Pictured: A 1973 Volvo 164