Looking to tighten your budget in light of recent circumstances? Great idea. “There are far too many Americans who are financially unprepared for an economic downturn, and lack of sufficient savings will be most people’s Achilles heel,” stated Bruce McClary, spokesman for the National Foundation for Credit Counseling. Experts recommend having 3 to 6 months of savings on hand. Obviously, this can be a challenge for many right now who are living paycheck to paycheck. In fact, about ¼ of American adults report they would not be able to cover an unexpected expense of $400 or more, according to a survey by the Federal Reserve. Saving money during a financial crisis can be difficult to say the least, but it is possible. Here are some ideas on things you can do today to improve your financial situation.
Live off an emergency budget.
An emergency budget basically focuses on essentials only and leaves out almost all discretionary spending.This means getting rid of travel, shopping, gifts… anything that isn’t absolutely necessary. Your goal should be to put at least 20% of your take-home pay towards savings. Live off this emergency budget until you have at least 3 months of net income set aside in savings. That way if an emergency happens, you’ll be ready.
When it comes to saving money, it’s less about the amount and more about the practice. It’s about reworking your income, whatever that may be, to allow room to save. And it’s never too late to start! Generally speaking, 50% of your income should go to essentials, 30% toward non-essentials and 20% toward savings or debt. If living off the emergency budget previously mentioned, the 30% non-essential category is the first to go. A great tip would be to ask your employer to automatically deposit 20% of each paycheck right into a savings account.
Don’t get overwhelmed by the end goal.
If you’re new to saving, don’t panic. It’s possible to start saving money, even during a financially trying time. Rather than worrying about the end goal, focus instead on getting in the habit of saving money, even if it’s just a small amount. “Every dollar you can set aside in savings is one less dollar you will have to borrow in a time of emergency,” McClary said.
Cut unnecessary expenses.
While it’s still important to support your local economy, there are definitely times when cutting back is essential to your financial stability. Consider downgrading to a cheaper phone or internet plan. Cut out cable. Reduce electricity. Hold off on buying that pet. Set “no spending” days. Watch what you eat. Try using a prepaid card that you reload weekly.
How to prioritize spending?
If you get to the point where you need to make some tough decisions about where to put your money, prioritize your bills. First, pay your mortgage or rent on time to protect your credit score. Make sure your minimum payment is met on all credit cards. Take advantage of any leniency programs companies and banks are currently offering.
It’s side hustle time.
Historically, a recession has usually indicated an increase in people starting their own businesses. If you’re finding you have some extra time everyday, it might be the perfect time to start that side hustle you’ve been dreaming about. If you’re not quite sure where to begin, here are a few tips from Motley Fool:
– Think about the things you enjoy doing. Your side hustle doesn’t actually have to feel like work, so consider monetizing a hobby. If you play an instrument, you might try offering music lessons. If you like coding, sign up to develop websites in your spare time. And if you love animals, look into dog walking or pet sitting.
– Figure out how much time you can devote to a side gig. Some side hustles require more time commitment than others. Assess your schedule and see how many hours each week you can reasonably carve out. From there, you’ll be better positioned to explore your options. Along these same lines, consider whether you’re able to commit to a side gig with set hours. Work you can do on your own terms may be more suitable.
– Be open to trying different things. You might think you’d enjoy working as a DJ at night, but the late hours could be grueling. Or you might assume that, since you like gardening, you’d enjoy working at a nursery on weekends, then discover you’re not too keen on customer service. The point? Be prepared to give a few different side hustles a go before settling on the best one.
Create a new budget.
If your day to day spending looks different than it did a month ago, update your budget. Take out commuting costs, dry cleaning expenses, gym memberships and coffee runs. Financial adviser Gretchen Meyer suggests creating a budget that reflects your new reality. If you need some extra help, an app like Mint can really make a difference. Mint is completely free and you can use it to track bills, split transactions and set budgets. You’ll be alerted when you exceed your spending threshold and can also monitor and check your credit score for free. Another great resource is the free budget planner from Nerdwallet. It follows the 50/30/20 budget rule. Here are a few other tips from Nerdwallet to follow when creating your budget:
How to make a budget in 5 steps.
1. Figure out your after-tax income. If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income — perhaps you make money from side gigs — subtract anything that reduces it, such as taxes and business expenses.
2. Choose a budgeting plan. Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future. Budgeting plan examples include the envelope system and the zero-based budget.
3. Track your progress. Record your spending or use a budget app.
4. Automate your savings. Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part. An accountability partner or online support group can help, so that you’re held accountable for choices that blow the budget.
5. Revisit your budget as needed. Your income, expenses and priorities will change over time. Adjust your budget accordingly, but always have one.
Stay hopeful and positive about the future of your business.
Although a financial crisis is very hard and discouraging, it’s so important to stay hopeful and positive. A positive attitude will help you emerge from distress, while a negative attitude can prolong the process. When it comes to running and growing your business during these times, we are here to help. Our account managers are working hard to make sure any questions or concerns pertaining to Covid-19 are resolved. If you are feeling worried about the future of your business, feel free to reach out and we’d love to brainstorm some marketing ideas together.