The temptation to spend is everywhere. At the same time, you might be stressing about money as the news makes a recession seem likely. This makes for the perfect time to take matters into your own hands and tighten up your budget and spending. Here, Scribd Coach author of Money Myths and money expert Renee Sylvestre Williams shares her best advice for recession-proofing your finances — without having to live like a Spartan.
Talk to your friends about money
When times seem tough, it's tempting to try to bury your financial concerns or woes, but Williams says that now is the best time to talk to friends and family about money. You’ll probably learn that you’re not alone, and you might be able to bounce ideas off of them. For example, you may be considering raising the price of a product you sell or rates for a service you offer. Chat with others in your field to see if they're planning to do the same, or if they think holding steady is the more prudent choice.
Similarly, Williams says that friends who are also dealing with tightening their purse strings might be happy to share budgeting tips and tricks, compare rents or mortgage rates, or even work together to find ways to save money on things that are important to all of you. For instance, working with a personal trainer might be too pricey for just you, but when split between yourself and five friends, a weekly semi-private session with that trainer might be more reasonable. "I even have a few friends who compare notes on where to buy the cheapest produce in the city!" she adds.
Passive income might not be worth the effort
As people stress about an impending recession, more articles begin to wax poetic about creating 'passive income' or developing a side hustle to bring in more cash. But while Williams encourages increasing income, she wants people to understand that setting up a stream of passive income can be labor intensive and costly. A rental property might be a good investment, but it requires a big infusion of cash, regular upkeep, and more risk than you might be willing to deal with. At the very least, she urges folks not to try self-publishing a book for passive income. "Writing a book is a common example," she says. "But writing a good book takes a long time, getting it edited professionally costs money, marketing it is expensive and difficult — you're not going to make a lot of money right away, if at all, and it's going to cost you a lot of hours." Write a book if that’s always been on your bucket list, but don't expect to become a millionaire overnight, or ever.
Have a spending strategy
Big sales can be tempting and mess with the most well-intentioned budgets, but if you have a plan and stick to it, you can actually make sales work for you, says Williams. Keep a list of the things that you would like to buy — a new TV or iPhone, or a specific gift for your spouse — and investigate what the retail prices are. Often, Williams says, the 'sales' on Black Friday or the like are less impressive than they seem: Retailers tend to bump up the sticker price of items just ahead of Black Friday in order to 'knock them down' so discounts seem steeper. But if you know the TV you want costs $700 retail in early November, you won't be fooled when it's 30% off but somehow still $600. You may also want to set a holiday sale budget, and delete credit card info from your computer so you have to get up, get your card, and re-input the info for every purchase. In other words, limit spontaneous purchases by making it harder to pay.
Even if you're dropping your investment rate down to beef up your emergency fund, Williams recommends not setting it to zero. "I've talked to a lot of advisors about what they're doing with their money right now, and they're all still investing," she adds. Even $50 per month into your investment accounts (401K, IRA, or a regular investment account) can keep your savings on track. Automate that now so you're not waiting until the end of each month to see if you can put anything into that account. You can also automate moving money into an emergency savings account, Williams says. It's up to you how much you need in that account to feel comfortable, but having some money that's easily accessible is more important than ever, as interest rates on credit cards continue to rise.
It's tempting to go down a negative spiral and start panicking as you read headlines about the recession, inflation, and interest rates. But worry won't solve anything: Action will. Check on your emergency fund, automate investments, trim your budget where you can, and consider taking on extra work if you're truly concerned. "If you're going to panic, at least don't panic while you're looking at your investments," Williams laughs. "Don't forget, you're playing the long- term game with those. Just leave that alone."