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Home›Graphic Design›Save for a rainy day

Save for a rainy day

By Wendy R.
May 1, 2022
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Oe have probably all heard our parents and grandparents tell us to “save for a rainy day”. but what does that mean exactly? Building a “cushion” for emergencies? Take early retirement? Or plan ahead for the next recession?

In terms of the national economic downturn, the Great Recession of 2008 negatively impacted the savings and investments of many people who had to rebuild a lifetime of savings.

Although we don’t know when the next recession will hit, we know it’s possible at any time, so it’s a good idea to always be prepared in advance. Being taken by surprise could mean you need to make some quick – and probably unpleasant – changes to your lifestyle.

How Inflation Affects Your Lifestyle

After a long period of interest rates at historic lows, it makes sense that the price of goods and services will continue to rise, as will the cost of borrowing to pay for many of these items.

Inflation has been at the forefront of the news lately, so understandably people are worried about a possible recession around the corner. What happens during a recession? We would likely experience job losses and unemployment, falling real estate values ​​and falling investment values.

These inflationary tendencies can have a negative impact on your personal finances and your purchasing power, which means that it may take more money to buy the same amount of goods and services that you need and want.

With that in mind, it would be a good idea to forecast the need to live within your means during times of rising prices. The good news is that there are ideas that can help.

How to plan

There are several ways to plan for continued price increases, as well as reduced working hours or even total job loss in the event of a recession. Some of the key strategies include cutting unnecessary expenses, saving one partner’s income while living in the other’s home, diversifying your sources of income, expanding your skills, and diversifying your investments.

Reduce unnecessary expenses

One of the best financial strategies you can implement in anticipation of a recession (or even if you just want to save more money each month) is to cut unnecessary expenses. Developing a spending plan and a list of your essential and non-essential expenses can make all the difference in keeping track of your money, as well as showing you where you could cut certain expenses.

For example, do you really need the premium cable TV package, or could you cut back on some of those expensive movie channels?

Other strategies to cut unnecessary spending include making (and sticking to) grocery lists, bringing lunch to work rather than going out, turning off lights when leaving a room so you don’t waste electricity (because even seemingly “little things” add up), and inquire about insurance reductions for the spouse or domestic partner. (Many insurers now allow same-sex couples to pay less on coverage if both people take out a policy.)

The money you don’t spend can then be used to bolster your savings, which can also help you prepare for a rainy day and the corresponding inflation. This is especially true if you encounter unexpected costs like a roof leak or a fender bender. Rather than putting those repairs on a high-interest credit card, you can instead withdraw the money from your emergency fund.

Saving a partner’s income By living with another

If you are married or live with your partner and both work, you might set a goal of paying for your living expenses with one of your income and investing the other’s income in your savings or your investments.

For those in a strong relationship where each partner maintains a separate household, it may be a good idea to take the next step and move in together. This alone could save you a significant amount of money each month because you can eliminate many duplicate expenses like rent or mortgage and utilities.

Depending on the situation, you may even be able to keep both houses and rent one. This can create a source of passive income, as well as additional tax deductions on the rental property.

Even if you’re not able to save all of a spouse’s or partner’s income, you can start small with the amount you can swing and then work towards a larger amount later.

Diversify your sources of income

Diversifying your sources of income can be another viable way to prepare for a downturn in the economy. In that case, you might be able to take a hobby, like graphic design or writing fiction, and turn it into an income-generating business.

Today, there are myriad ways to generate income both online and offline, often on your schedule, like driving for Uber. You can also get creative with revenue generators like renting out unused space in your garage to someone who needs extra storage.

Another reason it’s important to have supplemental income-generating strategies in place is in case you or your spouse or partner dies unexpectedly and the survivor’s household income is significantly reduced. This is especially true if you are unmarried and the survivor would not automatically receive the deceased’s retirement savings, employer-sponsored life insurance proceeds, Social Security income, and/or the continuation of the retreat.

Develop your skills

Another way to help fight inflation is to develop your skills so that if you lose your current job, you can move on to another industry or field where what you bring to the table is still needed to others.

When deciding what other skills you want to acquire, it may be a good idea to consider those that are more recession-proof, such as health care, education, social work, veterinary medicine, accounting, application of the law, firefighting or auto mechanics. This way your skills are more likely to be in demand so you can continue to generate inbound cash flow.

Diversify your investments

Diversifying your investments can provide you with some important benefits. For example, diversification is a risk management strategy that promotes the presence of a variety of financial vehicles in your portfolio so that the risk of loss is reduced and you can ideally increase the possibility of higher returns over the long term.

Keeping your financial life on track

A financial planning professional can help you develop a plan tailored to your specific goals that can withstand our long-term economic cycles. It’s also a good idea to review these plans on a regular basis. To get started, or to get a second opinion on a plan you already have in place, it can be beneficial to work with a financial planner who is familiar with the financial issues of the LGBTQ community.

This article appears in the May 2022 issue of OutSmart magazine.

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