This is not a “happy talk” column, suggesting all you need to do is hold on and things will be back to normal in 12 months. This is “real talk” on what you can be doing now to make sure you weather the coming years in as good shape as possible.
As summed up by my good friends and colleagues, Dick Wagner, CFP®, and Mike Haubrich, CFP®, what we need to do is simple: earn more, spend less, save more, and not do anything stupid.
These are simple concepts, but that doesn’t mean they are easy to follow. Most Americans have found these ideas to be profoundly difficult to practice. Here are a few suggestions that might make it easier.
1. Earn more. Your first response to this may be, “I can’t earn more,” and maybe you can’t. But maybe you can. For most of us, earning more will mean working harder. It may mean getting a second job or sending a non-employed spouse back into the work force. For the newly retired, it may mean going back to work, even part time. Maybe it means babysitting for family members or offering to do domestic chores once a week. Maybe you have a hobby, such as quilting or woodworking, that could become a source of supplemental income. Be creative; have a brainstorming session with your spouse, friends, or others you respect to see what ideas you might come up with.
2. Spend less. To spend less, you need to first know what you are spending. This is important. Do whatever you need to do to become conscious around how you spend your money. Get a personal accounting package like Quicken or Mint. Entering your spending for the last year may take you a weekend, but it’s essential to know the past.
Don’t stop there; use the software’s budgeting feature to estimate what you will need to spend for the next 12 months. One suggestion is to divide your spending into three “buckets”: fixed expenses (rent or mortgage, health insurance, utilities, taxes), future expenses (emergency fund, saving for major expenses such as cars, retirement savings, college savings), and lifestyle expenses (groceries, eating out, entertainment, personal care, subscriptions, memberships). As you go through your expenses, stop and seriously consider each one. Which ones are genuinely fixed at their current amounts? Which are necessities you might obtain for less? Which are largely discretionary?
For a list of money saving tips, go to my website at www.kahlerfinancial.com and enter “thrifty way” into the search box.
3. Save more. This is where your future expenses come in. Start a savings account for any future spending goal like financial independence (retirement), holiday giving, vacations, house and auto repairs, college tuition, etc. If you need help, it may be a wise investment to hire a bookkeeper for a few hours, have a session with a financial planner, or enlist the help of a financial coach.
4. Don’t do anything stupid—quitting your job impulsively, investing a chunk of money in a home business without checking it out carefully, or falling for get-rich-quick scams. “Doing something stupid” might also include not making any changes. Continuing to do what you’ve always done will only produce the same results. You don’t keep books or have a budget? How has that been working for you?
What all these steps add up to is learning to do more for less. It requires effort, commitment, and creativity, but it can be done. Yes, getting through tough times means holding on and waiting. It also means doing what is necessary to take care of yourself and your family.