After the global events of the past few months, it has become painfully obvious we are going to go through and economic downturn.
There are a few things that are certain…one is that you will sleep a lot easier if you have an emergency fund. The second is that it is a good idea to figure out how to spend less money.
Unfortunately, if you do not have an emergency fund in place, you are probably not going to build one now.
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However, that does not necessarily mean that you cannot do things to help your financial situation. So, what should your next steps be to get you to spend less money and cutting expenses?
How to Spend Less Money
There are 2 ways to spend less money. Stop spending on things that are not necessities and cut back on expenses where ever possible. So, what is a necessity?
The dictionary defines a necessity as “an indispensable thing” – something that everyone needs. There are some things that everyone clearly needs just to survive, such as food, water, shelter, and clothing.
This definition leaves a lot open for personal interpretation. Food can be a basic meal cooked at home or a meal for 2 at a nice restaurant that costs more than $100.
Clothes can be the same way. You can shop at a thrift store or at a boutique shop and stores that fall somewhere in between. You can buy necessities that fit your budget (or less) or you can go to the “luxury” end of the spectrum.
Just because you need it does not mean you have to break the bank getting and now is probably a good time to lay low even when it comes to spending on necessities.
Discretionary income may be left unspent until the slowdown in the economy has passed. In the upcoming months, you will be glad you did not spend the money.
The second half of spending less is reducing expenses where you can. I know for myself, there is quite a bit I could eliminate and would not lose any sleep over it.
Today’s society has made it easy for a person to accumulate many $5 – $25 recurring charges without thinking much about it. It only takes a few of those and you are paying hundreds extra per year.
Here are six things you can do stay ahead of the game when the economy is slowing down:
1. Stop Spending Money
There will be plenty of time to spend money when the economy recovers and things get back to normal. In an uncertain economy, cash is king more than ever before.
With everything be closed, eating out, travel and other types of entertainment will not be an option for spending cash.
One of the biggest temptations right now is all the things online that you can spend money on. Unless you really need it, it should wait for at least a few months or longer. The time may come when you are glad that you did not spend the money.
2. Find Expenses You Can Eliminate
Are you paying for things you are not using? It happens these days. Gym memberships, premium cable channels, Amazon Prime, just to mention a few. Recurring subscription costs can be easy to forget about.
Look down through your credit card and bank statements to make sure you are using everything you are paying for.
You may want to consider canceling it even if you are using it. The extra money may come in handy in the future. This is a good time to be ruthless when it comes to cutting expenses.
3. Make Things Last Longer
There are a lot of things that we use every day that we can “stretch” if you think about it. Do you use dryer sheets? Cut them in half or use them more than once. How much shampoo do you use? How often do you wash your hair?
Can you do without paper towels and use towels instead? Many times you can get by with less than the manufacturer recommended amount.
Just think about what you use every day and see if you can buy with half as much. Some things you can and others maybe not. Here again, you might be glad you save those few extra dollars.
4. Challenge Yourself to Live More Frugally
Challenge yourself to 10% (or more) out of your variable expenses. Utilities might be a good place to start on this one.
Do you still have a landline (some people do)? Get rid of it unless you have a good reason for keeping it. Look at your cell phone bill? Can you reduce it?
Heating and cooling costs also present an opportunity for saving money. Turn heat down a few degrees and air conditioning up a degree or two and you see a lower utility bill.
Look at credit card and bank fees. If you are paying them for any reason, what can you do to eliminate or reduce them?
These are just a few ways to live more frugally. Look at every penny that is going out of your bank account and see if you can find a way to reduce it.
5. Find Ways to Make Extra Money
If you have debt or in this case preparing for a rainy day, find ways to make some extra cash. The quickest way to make money is to sell things you do not need.
But we are in a time where people are hanging on to their cash. You may have to try to pick up extra hours at your current job. While some companies will lay people off, others may actually have more positions available.
If you are one of the unfortunate ones, take a deep breath and think about what you can do. Right now, Amazon is hiring as well as many other essential businesses.
6. Stop Worrying
Worrying will not accomplish anything. It will make it more difficult to see any possible solution that might present itself.
Try to find a healthy way of managing the situation. Stay active, read, create, talk to others, find ways to give back.
Everything passes. Destructive behavior and negative thinking will only dig you a deeper hole.
7. Know the Difference Between Wants and Needs
If you need it, you may need to buy it not. It depends on what it is. Rent/mortgage, car payments, groceries…things like that are necessities.
“Wants” are things like a new pair of shoes, eating dinner out and remodeling your home. There is a time for these things, but it is probably not now.
A 50/30/20 budget plan can help figure out how to budget your money. These times are unusual and it is a good time to avoid spending money on wants.
Family, Friends and Free
This is a great time to focus on family, friends and things that have little or no cost. The fact that many things are closed sort of helps with not spending money.
Gain support from family and friends. You can still be social while social distancing. There are lots of cool ways to hangout via digital means.
Many people are going to have extra time on their hands and will be learning a new way of learning and working. Embrace the present, stay safe and plan for the future ahead.