Budget for the recession now

By glblguy

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:

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!

15 Responses (including trackbacks) to “Budget for the recession now”

  1. Make Friends, Earn Money Says:

    I think that the global economy is in a state of denial and people are trying to talk up our prospects. People don’t like using the recession word but it is likely to come unless we act now. I agree with cutting back on the essentials and personally my priority would be reducing utility bills as these are rising more sharply than any other type, this means switching off aplliances rather than leaving them on standby, only boiling enough water for the drinks that you need rather than heating a whole kettle of water and altering heating or air conditioning temperatures by around 1 degree, which can save alot of money over the year.

  2. Frugal Dad Says:

    The fact people are paying credit cards first is sad, but true. I used to think this was soley because credit cards were the squeaky wheel, or because people are waiting on a mortgage bailout, but I agree with you – people are making payments to free up available credit to live off. We’re going to wind up with many thousands of people with current Visa cards and no home. Sad.

  3. jay Says:

    I concur with a lot of what you are saying, but I take (slight) issue with the view that earning more is better than cutting back. I have come to the conclusion that the quickest way to be better off is to slow down on the spending… I even wrote a squidoo lens about it…
    Like you, I have about five sites that earn varying amounts of money, but have used the philosophy that the best way to fix a leaky bucket is to patch the leaks first, THEN fill it up…
    Of course, it’s all subjective depending on how you view ‘essential’ spending, but probably the best way forward is to combine the two actions, after all if you spend an hour on line making $50, you might find that you could have saved $100 in ten minutes by changing your electric company.

  4. "Mo" Money Says:

    I especially like the idea of making money with a second job. I will try some of your suggestions. Thanks!

  5. R C-Jackson Says:

    Right on the money!

    I just cancelled my cable yesterday, so I’m not going through “the shakes” quite yet. But I did realize there are soooo many other ways to enjoy the same things FOR FREE or for a substantial reduction. I’ve started many things:
    – my love for CNN will never die – so I watch the podcasts from iTunes on my computer
    – I go walk the treadmill at my gym when there is a show I’d like to see (which I use every day and it is CHEAPER than cable per month – and I even burn some calories!)
    – I curl up with a good recycled newspaper I picked up or could possibly choose to get NetFlix for a few movies to watch a month.

    Great post! And soooo important!

  6. TUDrewser Says:

    There is another difference between increasing income and decreasing expenses. Assuming you claim your extra income on your taxes (of COURSE you do!), or that taxes are automatically taken out (second job, etc), when you work hard and make an extra $100, you don’t see all that money. First, let’s take away 30% for taxes, now you have $70. Take away 10% for tithing, you’re now down to $63 (assuming tithing off net just for this example). So you increased your income by $100, but now only have a little over half of actual money.

    Now, reduce an expense by $100. That’s $100 of new, available money.

    I’d argue that you’ll “make” more money (up to a point) by reducing expenses than increasing income.

  7. jay Says:

    Great point TUDrewser..is that an anagram of sewer turd? (I digress – crude English joke) although if we are talking about internet earnings (and I know I am) then tax is possibly not an issue (ahem) but your point is very well made – salary and take-home pay are not the same thing…

  8. TUDrewser Says:

    Heh, you know, I’ve used this screename since college and have never noticed that ;-)

    Alas, it does not switch up “sewer turd” (as cool as that’d be), but stands for Taylor University, my alma mater, and Drewser as a nickname from an old friend.

    However, from now on I shall be “Sewer Turd”, the commenter formerly known as TUDrewser :-D

  9. leann Says:

    Just wondering if you have to claim money from online surveys on your taxes. I guess it depends on how much you actually make. Anyone know?

  10. TUDrewser Says:

    Technically, you are legally responsible for claiming it. However, based on how much you make, there may be no evidence. If you make enough from a single source, the’ll probably have to send you a 1099 showing the money you received, meaning you would have to claim it because the gov will have that 1099 too.

    I think.

  11. leann Says:

    Thanks! As long as I get something I can send in, I don’t mind claiming it. I just hate having to keep up with stuff if I don’t have proof.

  12. TUDrewser Says:

    I would guess you’d probably have to get quite a bit of money from a single site before they’d send a 1099…as in, $250 or more as a wild guess.

    No 1099, no real proof you received compensation. Plus, I think the IRS has bigger fish to fry ;-)

  13. leann Says:

    Yeah, I totally agree with you. Plus, I doubt I get that much money off of one single survey site anyway. Thanks for the help!