We know a recession is coming and there is no way to predict the timing of the event or what exactly will trigger a recession. What I do know is that our capitalism centered economy requires that you spend, but how long can you keep that up? If you’re not keeping an eye on where you spend your money then you’re certainly headed for financial trouble when the next recession hits. Here are my top 10 tips to recession proof your finances before the next recession.
The number one way to recession proof your finances is to get out of debt as quickly as you can and stay out of debt. The worst kind of debt is credit cards. With an average interest rate of 16% and an average credit card balance among Americans holding steady at $7,000 per household. Making only the minimum payments on this debt, an online calculator estimates it will take more than five years to pay this in full with added interest over $3,000.00 at a monthly payment of approximately $163.00 per month.
Instead of taking the five years to repay, suppose you were to file a Chapter 7 bankruptcy case and eliminated that debt today. Then, take that same monthly payment you would have used to pay the debt off and instead you added it to a savings account. Instead of simply getting out of debt within five years, you could have built up a savings of more than $10,000.00 as shown in the picture below.
The key here is to eliminate your debt as quickly as you can to take advantage of the time value of money by saving instead of spending.
After that, it’s important to use credit wisely to avoid paying all that added interest.
As a business owner and marketer, I can see the number one way for me to increase my income is to convince you to subscribe and pay a small monthly fee. Why? Because you won’t even notice it until you realize you don’t have any money left over at the end of the month. Think those subscription food or clothing companies are delivering value? They’re making a profit at your expense. I’ve tried a food subscription and ended up with a bunch of little bottles of vinegar when I already have plenty in my pantry. What a waste.
Sure it’s nice to get boxes in the mail, but what price are you paying for that smile?
Transportation costs are a big expense. There’s the price of the car, the interest rate on the loan, insurance, registration, maintenance and gasoline costs. So, what’s the true cost of car ownership? You’ll need to add up how much you’re currently spending each month to get the true cost. Be sure to include annual expenses like registration and divide that by 12 months and set aside a few dollars each month so that you have the registration money on hand when the bill arrives. Otherwise, annual costs can come as a shock to that month’s budget when you fail to budget for it. On average, transportation expenses average about $500.00 or more per month, depending on how many miles you drive.
Ownership is always cheaper than a lease because when the car is paid off, at least you won’t have an ongoing, perpetual car payment as you would with a lease. So, get those cars paid off and take good care of them and maybe you’ll get to drive a 1997 Mitsubishi Mirage like my husband.
Without fast food and cheap eats, some of us would starve. Did you know that the average household spends approximately $386.00 per month on food, per person? My husband and I spend no more than that per month for the two of us. How do we do it?
We prepare a weekly meal plan, then look to see what we have on hand already and only buy things we need for the week. We make a list and stick to it. We both cook, so that helps. We have our weekly staples of tacos and burgers that are easy to make. Sure, sometimes I’m tired and don’t want to cook, so when we eat out, we like a particular Pho place close by and spend no more than $25.00 for a dinner for the two of us.
Listen, everyone needs to make sacrifices and compromises when it comes to recession proofing our finances. I can hear you balking now, but mark my words, if you don’t get control now, you may end up in bankruptcy later.
My husband is grandfathered into that $99/year membership fee with 24 Hour Fitness and every January, he sees an influx of new members getting to their resolutions. This only lasts for the month of January and then the numbers dwindle. This tells me that you all are wasting your money on good intentions and while that is a noble cause, you could just take a walk, ride your bike, or run. You could even do burpees, pushups and sit-ups at home while you’re binge watching television or surfing Facebook.
I don’t have a gym membership and will exercise at home on a free machine my neighbors gave me and a set of free weights I bought at Play It Again Sports. So, you’re beginning to see how we save money in our house by driving old cars and not spending money when we can get things for free. You try being a cheapskate for a few months and see how much money you can save.
Did you do it yet? We did. We cut cable and got an antenna on our roof. I now have more Korean channels than ever before, and I don’t miss cable or the $150.00/month expense much either. We do have Netflix and Roku, but in this transition we found free shows on apps like Crackle.
The downside is that we now have to listen to all those prescription drug commercials, but we’re threatening to make a Scrabble game using only prescription drug names for fun.
If you think you have your spending under control, then I challenge you now to document where every penny goes for at least three months. I love coffee too, but I make mine at home or at the office and only splurge on a fancy coffee infrequently. Writing down every expenditure gives you a clear picture of your spending and makes you pause to think about what you’re doing and why you’re doing it. Making a diary of spending also gives you the chance to bring your habits into your conscious awareness so you can make changes to correct the course of your budget and it helps to curb spending.
Another trick is to not immediately make that purchase if it’s more than $100.00 and not an emergency. If you wait for at least 24 hours before making larger purchases, you give yourself a cooling off period and you may find you change your mind. Also, when you stop using credit cards and spend cash, your budget gets real. It will be harder to spend your cash than putting it on charge.
Making new habits takes time, so give yourself several months to get it right. Keep cutting your budget and spending until you start seeing money left over at the end of every month and congratulate yourself when you get there.
Housing should not be more than 30% of your total income. This means that many of us are spending too much on housing and this has a painful effect on the rest of the budget. So, we need to downsize, or get roommates to keep from becoming homeless.
So many people are emotionally attached to the homes they own and look to me to help them save a home with enormous equity and eliminate their debts they can’t afford. It feels like pulling teeth to convince them to sell their homes, but sometimes it’s the right thing to do for the overall health of their finances.
Here’s a simple way to see housing costs. If your mortgage (principal, interest, taxes, and insurance) are cheaper than rent, then you should try to stay in the home. Whether you rent or own, you need to keep these costs under 30% of your total income. One of the benefits of owning your home is that you could move out and rent it, or just rent a room for additional income. We’ll add to your income with our #10 idea.
My husband and I are in relatively good health for our age and we save a lot of money by not needing ongoing medical interventions or prescription drugs. So, one of the best ways to save money is to take good care of your physical health. The easiest way has always been through a healthy diet and exercise.
So, learn to cook if you don’t know how. C’mon, I see YouTube has so much food content, you don’t really have any excuses here. Change your diet slowly and with medical help if needed, but you need to take your own health into your own hands.
Having health insurance helps, but I’m not a big fan of health insurance costs and I still see more folks headed into bankruptcy due to overwhelming medical costs or an illness that takes them out. That’s why this is so important.
Taking personal responsibility for own health is the place to start. We each do what we can for ourselves. This is also another reason that an emergency fund is so important because we’re only one illness or injury away from being broke.
All this cutting of the budget got you down? The only other way to help is to increase your income. With the gig economy in full swing, I’ve seen several articles where normal folks like you and I make extra money without going out of their way. Here are some of the ways I’ve seen people increase their incomes: Dog walker, dog sitter, food delivery, Uber, Lyft, Freelance, handyman, housecleaning, roommates, rent your home, run errands, babysitting, Etsy, or sell your used items.
I read that an attorney working a full-time job, took on delivering food on his way to and from work and even took Uber gigs convenient to him. In addition to that, he took other people’s dogs for them when they went on vacation and not one of these additional sources of income was out of his way. He increased his income by more than $2,000.00 per month and paid off his student loans with that money. What’s your excuse?
Just do what you can and start. Done is always the engine of more. Tell me about your success in the comments and Make 2020 your year of perfect budget vision.