Are you recession proof? How to make smart financial choices
The economic landscape is a bit volatile right now. In Phoenix, inflation caused an 11% increase in prices for common goods and groceries from April 2021 to April 2022, according to the Bureau of Labor Statistics.
There are discussions that a recession could happen. A recession is a significant decline in economic activity for several consecutive months, usually identified by a decline in GDP. As a result, unemployment may rise, there may be a slowdown in goods produced and sold, and wages may fall.
READ ALSO: Metro Phoenix #1 in the nation for highest inflation
Being prepared and financially secure is even more important during these times. Watching 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 percentage categories. Percents spend 50% of your monthly income on needs like housing, food, and utilities, 30% on needs like memberships, entertainment, and travel, and 20% on savings like funds emergency, 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 needs to meet your needs.
Once you’ve established your budget, one of the main things to consider is that it should be personal and change over time – it can and should adapt to your current finances. It is not a question of depriving oneself; it’s about taking control of your finances. Here are some ideas that can help you make your budget more recession-proof: review it regularly to track any adjustments to debits and credits, review recurring charges and payments regularly to see if anything can be reduced or canceled, and cut to the chase and keep plans and subscriptions to a minimum to save money.
If your job is unstable or you lose your job, you may want to consider establishing passive income or another source of income. Passive income is often seen as income earned without having to work for it. That’s not really the case. You have to start by working a little to be able to earn passive income more freely, and continue to work so that the money dungeon There are many ways to earn passive income, from writing a book to using your love for photography to start a business or invest. Whatever your form of passive income, you’ll want to start by defining your action plan. How much money will it 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 task during a recession. One of the easiest ways to minimize expenses is to adjust wants to focus on needs. You can do this by spending more time doing activities at home and reducing spending on outdoor expenses. Having movie nights at home, playing board games, and enjoying free community activities can be a great start. Reducing the amount you spend on eating out or ordering takeout and eating more at home — by taking advantage of in-store sales, coupons, and bulk food purchases — can also help minimize expenses. Reduce unnecessary subscriptions, change or adjust telephone and Internet plans and reduce your electricity consumption by adjusting the thermostat, reducing water consumption and cooking without using a stove or oven.
Tighter budget years all start with an adjustment in your mindset. Adjusting your habits and focusing more on sticking to a tighter budget will be much more effective if you have a strong, positive mindset about why changes are necessary and the positive results of change. Getting everyone in the household to come together about it will also help reduce the risk of an individual not meeting the fit and can be a great way to solidify ongoing positive money behaviors.
Author: Rachel Caballero is Community Development Manager at TruWest Credit Union. TruWest Credit Union is headquartered in Tempe, Arizona, and operates as a cooperative providing its members with quality lifelong financial services and a culture of caring for its members, employees and communities. TruWest is a strong and healthy financial institution with over 93,000 members and assets totaling over $1.5 billion. TruWest® Credit Union has 12 branches – eight in the Phoenix metro area and four in Austin, Texas. For more information, visit truwest.org.