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Weathering The Storm Of The Coming Recession.

The following is a guest post from Jonathan at Master Your Card.

There’s been a lot of buzz lately about the storm that seems to be brewing over the great USA, and we’re already starting to see signs that this tempest is starting to rear its ugly head. The storm I am talking about is the recession.

Financial experts differ on when the recession will hit; some say it will happen in the next few months, some think it’s still a ways off, and some say it is already here. Regardless, it’s time to get our finances in order.

Here are some tips for Weathering the Storm:

Reduce Spending

Keep track of your spending for one month. Write down goals on how to cut back. If you want, you can do this gradually, so that you don’t feel deprived. For instance, instead of going out to eat four times per week, cut down on the number of times you eat out until you reach your goal. You can also go “cold turkey” if you want to see quicker results.

Make a realistic budget

After you cut back on your spending, write out a budget. Remember to include miscellaneous items, seasonal items, and periodical purchases, such as car and medical expenses.

Stick to your budget by using cash

Figure out how much money you will need to pay your bills. Put that amount into your checking account. For your miscellaneous purchases, use cash using the envelope system. I have an envelope marked with different expenses, such as groceries, clothing, household, entertainment, gifts, and car expenses. I put the budgeted cash in each envelope. When those expenses come up, I already have the money set aside. Some months I don’t use all the cash in an envelope, so I just carry it to the next month. Some months I have to do a little rearranging with the cash, but I know that when the cash is gone ““ it’s gone!

* Tip: If cash seems to “disappear” when you have it around, try taking only part of the money when you go shopping and put the rest in a sealed envelope until you really need it.

Build an emergency savings

After you put together a budget, use your extra money and put as much as you can toward an emergency savings fund. It’s important to have a good cushion of money for those unexpected expenses. For a couple of years, our family car constantly needed expensive repairs. Unfortunately, my husband and I didn’t have an emergency fund at the time ““ so we whipped out the plastic to pay for the repairs. The result? Not only are we still paying for those repairs, we are paying much more than the original cost, thanks to high interest rates. When we got our income tax refund, the first thing we did was put one thousand dollars of it into an emergency fund.

Decide how much money you want in your emergency fund. A thousand dollars is a good amount. Once you decide on an amount, set up an account specifically for your fund. You will want it accessible, but not too accessible.

Put all extra money into building up this emergency fund until you have reached your goal.

Pay off debt using the snowball method

Take that extra money and start getting rid of debt. Write down your payoff goals and post them in a prominent place. This will help you stick to your goals when you get that familiar temptation to splurge.

Invest

After you pay down your debt, and after you do the happy dance, take all the money that you were using to pay down debt and invest it. Don’t get tempted to add expenses now that you have all that extra money. In his book “Rich Dad, Poor Dad”, Robert Kiyosaki advises that we buy assets and then use those assets to buy those fun extras.

Commit

Make a commitment to get your finances in order ““ the sacrifices will be well worth the financial freedom you will gain. The more you are committed to sticking with your financial goals, the better prepared you will be to get through the impending storm.


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