Budget for the recession now
Photo by: mugley
While the economists debate whether we are in a recession or not, I don’t think anyone can argue that we’re in a down economy. I also think that things are probably going to get worse before they get better. With the rising cost of goods, record high gas prices, a down stock market, a historic housing slump, and increased unemployment the down economy is going to impact all of our budgets.
Many people are currently buried in debt, from high mortgage payments to owing large balances on multiple credit cards. Let’s face it, credit card companies have been handing out credit cards like they were candy for the past few years and now it’s time to reap what was sown.
People are paying their credit cards first
An interesting and related fact I came across the other day stated that 10-15 years ago, bank customers paid their mortgage first, then their credit cards. Now however, the reverse is true. Consumers would rather pay their credit cards first, and often let their mortgage slip. Why? Because many are literally living off of their credit cards. They are living so far beyond their means, they rely on their credit cards available balance to get by each month. Crazy.
With a significantly down economy, a possible recession and even talks of depression, it’s time stop. The time has come to realize you can’t continue to live this way. The time has come to live on less than you earn, build an emergency savings fund, and start living on a budget.
Budget for a Recession
The economists can argue all the want about whether we’re officially in a recession or not, but if you are anything like me, you’re feeling it. My gas, food and utility categories over the past 3 months have slowly become more and more difficult to manage. Just last week, I ended up finally giving in and allocating more money to all 3. We increased the amounts in all of these categories by more than we needed.
Yes, I said by more than we needed. I did this in anticipation of future rising costs. I’d rather go ahead and live now as though it’s a year later than have to continue to make multiple significant budget adjustments. Rather than wait until the old budget is wriggling and screaming in agony, go ahead and budget for possible future costs now. Increase your budget categories for gas, food, gas, utilities and others that you expect will increase over the next year. Doing so has the following advantages: As prices do go up you won’t feel the impact since you’ve already budgeted for them and until prices go up enough to hit your budget amount, you’ll have extra money to place in your emergency fund or payoff debt.
At this point, some of you are saying: “But I don’t have any room in my budget to do this” or “Wait, I don’t budget”. My answer: “It’s time to make room” and “You don’t have a budget? You nut, start one!”. Making room in your budget is done in one of two ways: Cutting back on expenses or by increasing income.
Cutting back on expenses
Sometimes this is easy, most of the time this is very hard. How difficult or hard is all driven by how frugally you are currently living. Here are just a few ideas to reduce expenses:
- Cut the cable or at least premium channels
- Stop eating out
- Take a frugal vacation or just skip the vacation this year
- Sell that expensive car and drive something less expensive for a while. I did this about 2 years ago and haven’t regretted it once.
- Reduce your utility bill
- Cancel all of those monthly memberships you may have.
- Lower your cell phone bill
Again, these are just a few. Check out my Money Saving Monday tips for many more ideas.
Increasing your income
This is my favorite option. I don’t like cutting expenses, but I love looking for opportunities to increase my income. The world if full of opportunity, the trick is finding it. Here are just a few ways you can generate some extra income:
- Get a second full or part-time job
- Take online Surveys
- Start a blog
- Start a small side business
- Save money shopping through Ebates
- Become a landlord
- Use MyPoints
- Start an eBay business
I currently run about 5 different websites/blogs that generate alternative income for myself, and much of that goes straight against my debt.
These are just a few things. Pinyo over at Moolanomy has a huge list of ideas for generating alternative income. You’re bound to find something that appeals to you.
You don’t have to spend it all
Now, be careful with the advice of increasing your budget categories. Remember, just because you have an amount allocated to a particular budget category, doesn’t mean you have to spend it all. Make it a game, see how low you can keep the spending in each category. Maybe even set-up a monthly reward system for yourself if you spend less than x% of the category amount.
Have you recently made adjustments to your budget? What have you done to plan for the current down economy and likely continued rise of prices? Add a comment!