The word recession has been floating around lately. Interest rates are rising and the stock market is on a downturn. These things move in cycles so ups and downs are all a part of it. We’ve also seen the cost of almost every single consumable go up significantly over the last year or two. The cost of building supplies, gas, groceries, and so much more have been on a steady climb and all those increases can be hard to just absorb without some bigger changes to the budget.
This isn’t a doom and gloom post as most everything I’ve read around these topics are. While things like the cost of gas and the prime interest rate are outside our control, there are lots of things that are in our control. I’ve put together a list of ways that you can recession proof your personal financial ship so that you can more easily weather whatever storm may come your way.
- Reduce your current debt. If you have credit card payments, student loan payments, car loans, other loans, etc all over the place, you have a whole lot less room to absorb the increase in variable costs that is happening. Assume your income as being a consistent number and all of your income represents a pie (we’ll talk about this later, but for most people they have a similar income per month.) If you are chewing up a large chunk of your pie just making minimum payments, you don’t have the wiggle room to deal with an increase in another area too. At least not without turning to debt, or cutting out everything fun, neither of which are good options.
- This may be blaringly obvious, but don’t take out new debt either. Now is not the time to go make new big purchases on credit if you can help it. It’s not the time to go car shopping, or to buy a new camper, or refurnish your house on credit or anything like that. The goal is to make your fixed costs low so you can handle changes in the variable. Don’t shoot yourself in the foot by increasing your fixed at the same time the variable are going up. You won’t be able to keep up.
- On the topic of fixed costs, debt repayment requirements aren’t the only ones we can trim. This might be a good time to question all those little subscriptions, your cell and home communications costs, and those sorts of things. It might be a good time to shop around on insurance too.
- The single biggest fixed cost for anyone is housing costs. I worked my ass off on this area to make sure I had a tiny mortgage so that I could easily manage unpredictable incomes and changes in variable costs. I have made this area of my budget so tiny that I know I can handle any other financial problem without worrying about keeping a roof over my head. This might seem like something you don’t have control over, especially with the availability and sharp increase in home and rental costs, but there are parts you can control. The housing market is another thing that runs in cycles, so don’t feel like these high home costs are permanent. You can still work towards homeownership without actually pulling the trigger now when we are on the upside of the cycle. If you can help it, don’t buy when home costs are high. Home costs might be hard to change in a moment, but I want to plant the seed as it is the biggest way to add flexibility to your budget. Renters are by nature, more at the whim of market forces outside of control, so maybe owning might become a goal. Even if moving isn’t a viable option now, maybe taking on a roommate is. If you have space to rent out, do it! If you are a single person who works away, maybe airBNB your home when you’re away. There are lots of options here if you dig for them.
- No one wants to hear this one, but it may be time to take a hard look at the variable spending too. It might be time to acknowledge that you’ve been spending money that should be focused on house and home and battening down the hatches, on unnecessary spending instead. Might be time to re-think those regular nail or lash appointments. You may want to switch to a more low-maintenance hair style. Maybe alcohol consumption or take out is what is actually sinking your budget, and not what is going on with interest rates or rental prices. If you’re stressed out and spending money on numbing out or trying to make yourself feel better, I want you to try and take a more proactive approach to the stress by facing it head on. There are lots of past blog posts to get you going on finding action items.
- Add another income stream. I posted a link to a training Tony Robbins is doing right now that talks directly to this. They are talking about a specific type of income stream, but there are so many! I highly suggest listening to the trainings (They’re free!) if only to open your mind to the possibility of new ways to earn that maybe you haven’t thought of. There are straight up, hours for money ways you can add more income, but I want to challenge you to consider ones outside of that. Things like investment income, rental income, direct sales (they’ve gotten a bad rap, but if you’re passionate and committed to it long term, there is great money to be made) or more passive income type streams like creating a course, or book, or a product that can be sold without as much of the limits that trading time for money creates. These are the types of income that often require a lot of upfront work, but will carry returns into the future with much less time needed to maintain.
- Build savings. Ideally you would have started the savings train before the hard times hit. There is nothing like having a little stash of cash to ease anxiety and to give you some grace time to pivot on the bigger things. The second best time to start saving is right now though. Investors look at recessions as a time when stocks are on sale. The stock market always runs in cycles. Buying when costs are low can be a smart long-term decision. This topic is one I know well in theory, but the practicality of it is still a mystery. I’ve been doing research though, so stay tuned!
These are things you can build into your life no matter what is going on in the outside world to help create a life that has lots of fun and flexibility in it. It can also be the difference in being able to keep a roof over your head or to keep the health affecting anxiety at bay when times get harder. Most of them require some work to get going, but the pay-offs are so worth all the hard work! The ease I have now with all these things in place far surpasses the insane stress I had when I had a household income that was four or five times higher, but we didn’t have these foundations.
Keep your fixed costs well below your income, save something, and avoid debt whenever possible. These are financial rules for wellness that have been around since money existed. You don’t need to understand the stock market or housing industry and you don’t need any special education to start practicing those things. A great starting step is to figure out how you’ve been spending your money! Go back and read the posts about budgeting. It’s much easier to see what areas you should tackle first when you are looking at them in black and white.
There is so much talk about all the market changes and price increases that it can all be overwhelming. While there will always be things we can’t control, your power always comes from focusing and working on the things you do have control over. So pick one and start the ball rolling. Your blood pressure will thank you for your work.
Lots of love
Dawn
Tax Wise 