Hello Sophisticated Spenders!
We survived a recession AND a government shutdown. It can happen again! Before you go out and spend lots of money on fancy toys this holiday season, you need to recession proof your finances!
1. Boost Savings-A strong emergency fund should be your #1 priority. You will not feel too good about your decision if you spend too much time and effort eliminating all debt should something happen to your job. You may be debt free but will quickly dig yourself into a even bigger hole if you use ALL of your savings. Aim for 8 months of living expenses for your emergency fund.
2. Reduce or Eliminate Credit Card Debt-Credit card debt should be next on your list to reduce or eliminate. Credit cards also usually have the highest interest rates. So STOP using them if you don’t pay them off in full at the end of the month. Your credit score will thank you! Every time you swipe your card, there should be a voice in your head saying, “Have I paid for the stuff that I already have?”
3. Reduce/Consolidate Other Debt-use the power of leverage to consolidate all of your high interest debt into the best low-interest option that is available to you. You should base your decision on 1) interest rates, 2) secured vs unsecured debt and 3) what is tax deductible. Quick example: Should you use a home equity line of credit (HELOC) to pay off student loans? Yes IF the interest rate on your student loans is higher than HELOC rate. You can also claim the interest on your HELOC at tax time if you make too much money to claim the student loan interest (studentloan interest cannot be claimed on your income taxes if you make above a certain income). Also, student loans can never be discharged in a bankruptcy.
4. Sell or donate “stuff”-this will bring some money in your pocket now if you sell your items or later at tax time when you claim your donations. You know you have lots of extra “stuff” lying around. Why not just turn it into some quick cash.
5. Downsize-decide what can be downgraded-tv packages, netflix, cellphone plans, house (move), apt, car, rent out an extra room?
6. Passive income-If you already have your 8 month emergency fund in place, decide on investing your money in some ventures that will make you some money while you sleep! You can buy investment property, invest in some dividend paying stocks, start a business, buy some income producing assets-options are endless!
7. Side Hustle-If you have some free time on your hands-do something on the side. It can be anything-blogging, teach fitness classes, tutor, dog walking, participate in focus groups, do mystery shopping, sing at weddings, officiate weddings, MC parties, sell stuff online, clean houses-brainstorm!
Any more tips? Did I miss anything??? Are your finances recession proof?