At this point, not even the most stubborn of optimists can argue against the fact that we are in a recession. As thousands of jobs are being cut and the stock market sinks to lows not seen since the 90’s, being prepared for the worst is an absolute necessity. Here are 10 ways you can make sure you stay afloat through the next few years.
1. Start or grow your emergency fund.
- Financial advisors recommend a cash savings emergency fund that could support you and your family through three to six months of no income. If for some reason you or your spouse were to lose your job, this would protect you from having to charge up the credit cards to pay your monthly expenses.
2. Find ways to earn extra money.
- Making side income is a powerful way to supercharge your savings plan. Whether it’s going through your apartment and putting up that DVD collection on eBay, (You know you just download all of your movies these days anyway) or starting a business raking leaves with a friend, any extra income that you pull in outside of your normal salary is money that you typically wouldn’t have had. Using this philosophy, it can go straight to bettering your financial situation.
3. Have a plan of action.
- Spend an hour sitting down with your house mates, significant other, or family to discuss some hypothetical scenarios. What if one of you were to lose your primary source of income? What steps would you take to find new sources of income and would you be able to live off of your current emergency fund and a single income? How long would it be until you were required to start taking out loans or using credit cards to cover expenses?
4. Contribute less to retirement accounts in favor of cash savings.
- Some retirement investment vehicles like a Roth IRA allow you to withdraw the principle put in to the account. In other words, the money that you put in, you can always take out penalty and tax free. Although you won’t be penalized, you most likely won’t have quick access to this money in case of an emergency. Keep in mind though, that once you take money out of a Roth IRA from previous years contributions, you can never put them back without it counting towards the current years limit (currently, $5,000 per year). When it comes to 401(k) accounts, the amount of taxes and penalties that would be taken out of a potential account withdrawal could be extremely damaging to your wealth. Don’t stop investing, but make sure you’ve allotted enough money to cash savings to cover any potential emergencies.
5. Create and maintain a budget.
- Creating and maintaining a budget is the single most effective way to be financially aware. By knowing exactly what you’re spending your money on, it makes it ridiculously easy to keep spending under control. Figure out your set monthly expenses first, (rent/mortgage, utilities, transportation, childcare) and then set a monthly savings and debt payoff goal. Based on the money you have left over, figure out ways to reduce spending on food, entertainment and similar things that we tend to spend more money than necessary on. (Eating out rather than cooking, movie theater rather than renting a DVD, etc.)
6. Reward positive financial behavior.
- The board and nail tactic may work, but I promise you the fishing pole and carrot approach is much more enjoyable. If one month you beat your savings goal by $60 dollars, it means that you made your savings goal. Congratulations. Take $20 dollars of your $60 surplus and get a 20 minute seated massage. Heck, maybe even that bottle of merlot you’ve been eying for the last two months - I believe 2001 was the best year. Any machine running at 100% capacity will eventually break. By rewarding yourself upon success, you are not only saving money but also creating good financial habits that will last a lifetime.
7. Get everyone involved.
- There are obvious reasons why every plane flies with a pilot and a co-pilot. But honestly, I bet the pilot would get pretty bored on a seven hour flight without some decent co-pilot conversation. By involving your family or house mates in the money saving process, it makes it fun and can create a sense of camaraderie. Every time you leave a light on in the kitchen, I eat your cereal for breakfast and vice-versa. Better start turning off that light before someone has to start hiding their Lucky Charms.
8. Kick it old school
- A deck of cards costs about a buck. There have got to be literally tens of thousands if not millions of games you can play with a standard 52 card deck. Invite three friends over for a euchre night. In this modern day and age, I feel like every day we take real human interaction more and more for granted. Go to the park, go for a walk. Walk up to a random stranger downtown and ask them a random question. ‘Who would win in a thumb war, Spiderman or Superman?’ You might get a raised eyebrow in return, but who knows. I bet that could start up a pretty interesting conversation.
9. Make purchases that will earn their keep.
- Purchasing a tool that will enhance your efficiency or job performance is an investment that will return it’s value. Buying a used laptop to allow you to do work on the road allows you to make better use of your time while increasing your efficiency. It will likely pay for it’s up front cost over time.
10. Change your method of transportation.
- Transportation can be a very high expense in one’s budget. Even though gasoline prices have dropped significantly from this summer, all those miles can really add up. Try biking to extra curricular activities. See if you can find people who have similar commutes to you and alternate drivers using a carpool. Driving 65 miles per hour on the highway instead of 75 mph can increase your fuel efficiency by 30%. Also, using cruise control uses less gas than your lead foot on the gas pedal.