Budgeting in a Recession

Even though we are hearing that the recession may be turning around, layoffs and unemployment still abound. Gas prices and food costs are still on the rise and it seems that every day is costing more. In tough economic times, one needs to know where and how their hard earned money is being spent. Creating and maintaining a budget are key to economic survival in a recession.

Have a budgeting goal

Take a serious look at your finances and determine what challenges you have. Determine what your current financial state is and decide where you want to be. Make sure that your goals are practical and attainable.

Your budgeting goals could be something like paying off a specific bill, or maneuvering expenses to make sure that you are spending less than you are earning. Be sure to give your goals an end date.


Know What You Do and Don't Have

The most important step to creating and maintaining a budget is knowing how much money you have and how much money you spend. There are many different options to help you track your expenses, such as keeping a log, filling out a budget form that can be found online or using a free online budget tracking system. 

Seeing how much you spend will help you determine how much you need, and where you may be able to cut expenses.

When documenting your expenses, be sure to take into consideration yearly expenses, such as vehicle registration. Divide these expenses so that you can determine how much you should set aside each month in order to lessen their impact.

Balancing Your Checkbook

The great thing about debt and credit cards is their simplicity – this is also their downside. We may not realize how much we are actually spending since we don't write down the amount or feel the money leave our hands. It's a good idea to keep your card usage logged in your checkbook and keep it balanced. Doing this will let you know how much money you have available, even if all of your transactions haven't been processed yet. This will not only help you keep track of your budget, but it will help prevent overdraft fees.

Stop Overspending

Now that you have your spending documented, look at where your money is going. Ask yourself these questions:

How much do I spend each month on non-essential items?
Do I go shopping for items that I don't really need?
Do I pay for memberships or subscriptions that I don't use?
Am I paying too much for insurance or utilities?

Determining what your spending habits are and deciding what you are willing to give up will be a major step in attaining your financial goals.

Set Aside Savings First

Saving is a large part of budgeting in a recession. Large companies are folding and jobs are being lost daily. Preparing for the economic worst will help to calm your anxieties. Even if you have debt, putting away savings each month should be a priority.

Putting away money may be difficult, but it depends on how you look at your budget. If you wait until the end of the month to put away your savings, there may not be anything left. Instead, try treating your savings like any other bill. Set up an automatic transfer, that will move a set amount to your savings account each month. Or, if your employer has direct deposit, have them deposit part of your paycheck into your savings.

Making and keeping a budget in a recession takes determination and effort. It may mean giving up luxuries that we have become accustomed to, but it will help create long-term financial stability. By keeping attainable financial goals, you will be able to stay afloat in tough economic times.

References

“10 Steps to a Better Family Budget,” by Louis R. Carlozo. Chicago Tribune. January 4, 2009.
“7 Ways to Prepare for Tough Times” by Richard Eisenberg. Good Houskeeping.
“Your 5-Minute Guide to Budgeting.” MSN Money, January 4. 2008.