The economic landscape is a bit volatile right now. In Phoenix, inflation has caused an 11% increase in prices on common goods and groceries from April 2021 to April 2022, according to the Bureau of Labor Statistics.
There are talks that a recession may be coming. A recession is a significant decline in economic activity for several consecutive months, generally identified by a fall in GDP. As a result, unemployment may rise, there may be a slowdown of goods produced and sold, and wages may fall.
Being prepared and financially secure is even more important during these times. Looking at your budget is the first recommendation. A common budget breakdown is the 50/30/20 rule, which is a proportional budgeting system that divides your monthly income into different categories by percentage. The percentages devote 50% of your monthly income to needs like shelter, food, and utilities, 30% to wants like subscriptions, entertainment, and travel, and 20% to savings like emergency funds, retirement, and personal savings goals. If you find that your needs are greater than the 50% allocation, you will need to adjust the percentages, sacrificing some of the wants to fulfill your needs.
Once you establish your budget, one of the key things to consider is that it needs to be personal and evolve over time – it can and should adjust with your current finances. It isn’t about depriving yourself; it’s about taking control of your finances. A few ideas that can help you make your budget more recession-proof are: reviewing it on a regular basis to keep up with any adjustments in debits and credits, regularly reviewing recurring charges and payments to see if anything can be lowered or canceled, and getting down to the basics and stripping plans and subscriptions down to the minimum to save money.
If your job is unstable or you lose your job, you may want to look at establishing passive income or another source of income. Passive income is often perceived as earning income without having to work for it. That’s not really the case. You have to start by putting in a bit of work to get to the point of earning passive income more freely, and continue to put in work for the money to keep coming in. There are multiple ways to earn passive income from writing a book to using your love for photography to start a business to investing. No matter what your form of passive income, you will want to start by outlining your plan of action. How much money it will take to start? What will the ongoing time commitment look like? How are you going to sustain the project?
Another key area to look at is minimizing expenses. Minimizing household expenses doesn’t have to be a stressful task, but it is an important one during a recession. One of the easiest ways to minimize expenses is by adjusting wants to focus on needs. You can do this by spending more time doing activities at home and decrease spending on out-of-home expenses. Having movie nights at home, playing board games, and taking advantage of free community activities can be a good start. Reduce the amount you spend eating out or ordering take out and eat more at home – taking advantage of store sales, couponing, and bulk food purchases – can also help minimize expenses. Reduce unnecessary subscriptions, change or adjust phone and internet plans, and reduce your utility use by adjusting the thermostat, decreasing water use, and cooking without the use of a stove or oven.
Tighter budget years all start with an adjustment in your mindset. Adjusting your habits and focusing more on adhering to a tighter budget will be much more successful if you have a positive and strong mentality about why the changes are necessary and outlining positive outcomes because of the shift. Getting every member of the household to come together on this will also help reduce the chance of an individual not adhering to the adjustment and can be a great way to solidify positive money behaviors, ongoing.
Author: Rachel Caballero is the community development manager at TruWest Credit Union. TruWest Credit Union is headquartered in Tempe, Arizona, and operates as a cooperative providing its members with a lifetime of quality financial services and a culture of caring for its members, employees and communities. TruWest is a strong and sound financial institution with more than 93,000 members and assets totaling more than $1.5 billion. TruWest® Credit Union has 12 branch locations – eight in metro Phoenix and four in Austin, Texas. For more information, visit truwest.org.