Whether you make $1,000 or save $1,000, your bank account looks the same. In a recession, when jobs and income streams grow increasingly unreliable, you must think more carefully about how you spend and when you save.
Last year, most economists predicted a recession in the U.S. by the end of 2021. Then, the coronavirus hit and brought the recession early. Now, the International Monetary Fund predicts that the pandemic-catalyzed recession will become the worst economic downturn since the Great Depression of the 1930s. The experts project the global economy to shrink by about 3 percent in 2020, and no one can guarantee that the fallout will correct itself on a timely schedule.
Average consumers don’t have the luxury of joining a group purchasing organization or distributing extra stock, like businesses do, but that doesn’t mean normal people have to sit back and accept their fate. No one affected by the recession can afford to wait passively for assistance that may never come. Workers and their families must take matters into their own hands.
How to Curtail Unnecessary Expenses
Different experts will tell you different stories about which expenses you should or shouldn’t cut. Only you know your life; as such, only you are qualified to make decisions about where to spend your money.
You already know the basics: make coffee at home, cook instead of getting takeout, take advantage of free entertainment. Instead of glossing over a list of items to eliminate from your budget, consider these tips on how to evaluate your spending habits and save money based on your unique situation.
- Track expenses with a spreadsheet or an app.
Not everyone loves to work with numbers, but anyone can use an app to learn more about where his money goes. You can’t change something you can’t see, so use an app like Mint or You Need a Budget to stay informed. If you’re a data-driven person, you can even create your own spreadsheet with Google or Excel to develop your own personalized budget.
Once you get your chosen app up and running, use the built-in alert features to let you know when you start getting close to the limit on one of your categories. Those cheap snacks and restaurant trips add up quickly, and if you aren’t careful, you could exhaust your budget for eating out halfway through the month.
- Pay yourself what you can.
People with lots of money love to tell people without lots of money to “pay yourself first.” That doesn’t always work, though, especially if you’re picking up extra work on the weekends just to make ends meet.
Instead of paying yourself first and pulling that same money back out of your savings account every month, learn to pay yourself what you can. Use your budgeting tool to learn how much you expect to spend, then put away the leftovers into a savings account. If you still need to pull money out of savings, redo your budget to account for your real-life circumstances. Making an unrealistically tight budget might feel good on paper, but shrinking the theoretical numbers without shrinking your actual spending doesn’t do you any good.
- Reduce power and water consumption.
Electricity and water bills stack up every month. You shouldn’t cancel your water and lights to save a buck, but you should set up your home and your routine in a way that helps you bring down your utility bills.
Try using fans and open windows to keep yourself cool in the summer instead of blasting the A/C all day. During colder months, use inexpensive insulating materials on windows and doors to prevent warmth from leaking out. Keep your showers short by playing a four-minute song when you get in, which can help speed up your routine and conserve water. You can even stop watering your lawn when every dollar counts.
- Put tough debts on hold.
Most budget lists advise people to pay off debts to save money, as if it were as simple as that. In reality, the U.S. is in the middle of a consumer debt crisis. Home loans, car loans, student loans, and credit card debts make up the bulk of the trillion-dollar problem — $14 trillion, to be exact.
During a recession, you may not have the spare cash to continue paying down your debts, and the banks know it. Make a list of all your accounts, and schedule time to call each bank to discuss your options. Some may let you postpone payments for a few months, like student loan providers and mortgage brokers have done recently. Others may lower your minimum payments. You don’t know unless you ask, and when you need money on hand for emergencies, paying down debts aggressively may not be the best strategy.
This recession will last for several more months at a minimum, so don’t get caught unprepared. Start tightening your budget now to save more money in case your income goes down. Don’t be too proud to file for resources like unemployment or food assistance. These are hard times for everyone, but they will be even harder for those who don’t make a conscious effort to address their finances.