The recession will affect us all differently, but make no mistake, it will affect us all. Some will discover great wealth during these challenging times, and others will lose everything.
Those who take preparations seriously have a shot at becoming wealthier than before. Those who attempt to carry out the same lifestyle will fall behind.
Welcome back to the Preparing for a Recession series (#1), where we discuss how to become rich during the next recession.
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What is a lifestyle? What type of lifestyle do you lead? Do you spend a lot of money and time on self-care and vacations?
Do you value family time above all else, or do you love alone time? Going into a recession, we must all redefine our lifestyles and keep the most important elements.
We can cut out the rest of the fluff; we simply don’t need any extras going into a recession. It’s extremely expensive to “have it all,” even in good times—let alone bad times.
So, how do we define what is important to us while vigorously cutting what we don’t need? Ramti Sethi says it best in “I Will Teach You to be Rich.” He says to “turn up” your money dial on things you love and “turn down” the dial on things you don’t.
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For example, I love to purchase $200 a month on video games but also have $200 monthly subscription services.
I only have so much time in the day; therefore, I need to decide which is more important. I can cut the video games to $150 and the subscription to $50. That gives me a 50% reduction on my overall entertainment bill.
It’s time for a hardcore budget. Creating a hardcore budget is the best way to distinguish between what you love and what is optional. A hardcore budget puts a price cap on everything, keeping you from overspending.
From the outside, a hardcore budget could seem limiting and restrictive; however, the results are much different than you imagine.
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Nothing frees you more than living within a budget. You will no longer feel guilty each time you swipe your debit card (no credit cards, please).
The three most important categories to regulate are food, self-care, and entertainment. These lifestyle elements can morph depending on the amount of cash flow you generate.
Let’s say your family earns $10,000 per month in earned income. Before self-care, food, and entertainment, you all have $2,000 per month left over.
The amount you spend on self-care, food, and entertainment will be $2,000 (or more)—that’s what I mean when I say they morph. They are like water that seeps into any available area.
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Now, let’s say we want to ensure we save $1,000 per month in our high-yield savings account (HYSA) going into a recession. It’s time to institute a hardcore budget for our three categories. It won’t be fun at first, but you will eventually come to love having total control of yourself and your spending.
Breaking down our hardcore budgets. We are actually doing quite well because we know we have $1,000 to play with. We will save the other $1,000 in cash flow in our HYSA.
Now, we have $1,000 to divide between three tough areas. Let’s start with food because it’s vital to our existence. As a family of four, we determine that we need $700 per month in food. That leaves us $300 for self-care and entertainment.
Looking at the numbers, we decided to lower our HYSA investments to $700. That will give us $300 for entertainment and $300 for self-care.
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The final numbers are $700 for savings, $700 for food, $300 for self-care, and $300 for entertainment. These are great numbers for a recession, and we have room to play with them further.
Staying on track with our budgets. We can further break down our budgets by getting into the weeds of each category. For example, we can break down our food budget into four weeks of $175.
Whatever food money we have left over per week can be used to eat at restaurants. Depending on our preferences, we can divide the food budget between groceries and eating out.
We can say the same for entertainment. If we are movie buffs, we can give ourselves $150 monthly for movies and the rest to save for a family trip. We can divide the entertainment budget equally between the family of four ($75 each).
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We are in complete control of our financial situation. However, making creative decisions is the most important element of instituting a hardcore budget.
Creativity is the way to win during a recession. Entering a recession is similar to entering an inflationary environment. The main difference is that the job market is much worse during a recession.
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I wrote an entire series as we entered an inflationary period in 2022. Many of those principles remain the same as we head into a recession in 2024 or 2025.
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The most important takeaway from the 2022 inflationary period is that those who were creative came out ahead. If you are stuck in your old ways, you will be left behind.
We can use our budgets to help us create what we need. Let’s look at some examples of how we can use our budget and creativity to lower our expenses.
For video games, I can play a game like “Warframe.” If I grind hard enough in-game, I can sell my wares inside the game for currency. Essentially, I can work hard to find things other players will purchase. I would not need to spend any money on video games, reducing my total from $150 to $0.
Let’s say I give myself $240 per month, or $8 per day, for Starbucks because it’s my favorite thing in the world. I decided to reduce my Starbucks on the weekends by making coffee at home, saving me $64 per month.
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Perhaps I will learn how to make my favorite coffee at home. It requires a one-time purchase of the machine for $200, but after that, I only spend $50 per month—saving me $190 per month.
I give myself $300 monthly for self-care, including getting my nails and hair done. I learn how to do nails at home, saving myself $150 per month. I also learn how to color my own hair, saving myself $100 per month.
The list goes on. Once you master paying your bills, reducing waste, and living on a hardcore budget, your financial situation will notably improve. Your actions will prepare you for a recession, inflation, or stagflation (recession + inflation).
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Lifestyle inflation is the true wealth destroyer. Beyond a recession, lifestyle inflation is the true wealth destroyer. A budget usually does not work because we do not want our lifestyles to “regress.”
Human beings, especially those living in the United States, feel that we deserve a particular lifestyle or a certain amount of luxury. That’s how we fail during a recession: our need to continue our inflated lifestyles.
It can be effortless to get used to spending $300 per month on video games, going to the movies every weekend ($400 per month), drinking Starbucks every day ($300), and going to an expensive gym ($200).
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Going into the recession, we knew we should cut most of these expenses, but we “don’t want to.” That’s the scenario most of us will face. We must confront ourselves; no one else is making these decisions for us.
Conclusion. Lifestyle creep is a major issue in first-world countries. As we earn more, we spend more and expect more. We will never go back.
Lifestyle inflation is how we struggle during recessions. Although we know better, we continue to chart a course toward financial destruction.
If you are reading this, you already know what to do. Hopefully, I convinced you that you can still “have it all ” but within a hardcore budget. Focus on the things you love and cut everything else, and you will survive and thrive in this recession. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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