There's no need to panic but it's wise to put a plan in place that can be quickly implemented if the economic downturn affects you. Financial advisers on news networks advise keeping 6-12 months income as a cash reserve, paying off all credit cards, etc - but that is useless information for anyone who has lost a job or found credit card payments have doubled in a month's time.
Deflation is the buzzword now but the rate at which money is being printed and spent this year will certainly lead to possibly rampant inflation in the future. Even those with job security may find themselves having to cut corners to meet the increased costs of everything from energy to gas to food. At the same time incomes are unlikely to rise fast enough to keep up with inflation in the next two to three years.
How do you prepare yourself for this economic challenge? Develop a 3-Step Plan that allows you to cut back in a way that affects your daily life as little as possible. Your plan involves identifying areas of your personal budget that can be reduced while limiting the feelings of fear and deprivation so common when money is scarce. If you are single it's not hard to make such a plan. Families should be open and honest about the need for a plan in case of problems and all family members should be included in drawing up the plan so that all have a commitment to the family budget.
Step 1 - Small Cutbacks to Make Now Identify areas where you can cut back on spending. This may be shopping at outlets rather than big name department stores, buying cheaper cuts of meat, setting thermostats 5 degrees higher in summer and 5 degrees lower during winter months.
Look especially at your daily cash expenditures. Those small purchases of mints, gum, jewelry, coffee, and impulse purchases here and there can add up to substantial dollars over a month's time. Use the ATM at your bank for cash withdrawals and avoid paying frequent $3 charges for convenience.
If you eat out every day for lunch or two nights a week for dinner, take a sandwich to work 2 days a week and cut back to one family night out. These are small concessions but enough to allow you to add to your savings account to build up your reserves. Limit gas purchases by organizing shopping trips to coordinate with other errands or by shopping on the way home from work. Join Netflix or Blockbuster Online rather than paying $5 for video rentals.
Step 2 - Scale Back Your Standard Expenses If the bad economy is having an effect on your work hours or income it's time to tighten up a bit more. Take an honest look at your ongoing monthly expenses. How many cable channels do you subscribe to? Cut back to the basic package.
In Step 2, it's important to be critical of every monthly expenditure and cut back anywhere you find excessive spending.
Shop at thrift and resale shops. If you've never done this it will seem strange at first but it can easily be turned into an adventure and you can buy two bags of very lightly used quality clothing for less than one or two new items. You won't feel "shopping deprives" and children love these shops filled with treasures.
Step 3 - Crisis Mode for Survival Facing job loss or severe cutback in hours - prepare for the worst by planning the least amount of services you must pay for monthly to keep your home and feed your family. The money you saved in Step 1 will be useful now. In addition, serious cutbacks are warranted. Keep your internet service but cut back to a cheaper dialup ISP.
Eliminate any cell phones that are not critical and limit the minutes on phones you keep. If your family uses cell phones, do you need a home phone? All cable TV companies are required to offer a very basic group of channels (but these are not advertised). Keep your local TV stations by requesting this budget rate which will reduce your monthly payment to $10-$20.
Personal financial crises often lead to feelings of helplessness and depression. Setting budget priorities before a crisis looms gives you control over your money and helps prevent bad choices that can be made in times of stress.
Author: Trace Morgan
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