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Hey, guys.
It's me, Chelsea, from The Financial Diet.
And I wanted to hop in really quickly before we
get to today's video because, for once, I'm actually
not going to be hosting it.
For the month of February, we're bringing
in three different experts to cover
a 360 view of how to prepare for a potential recession.
This is something that we get asked about more than basically
anything else on the channel.
Are we in a recession?
Are we going to be in a recession?
What does that mean?
What should I do differently?
What should I do the same?
How can I prepare?
And all of these are totally valid questions.
And they don't all have one right or wrong, black or white
answer.
So we've created our three-week series, "The Recession
Roadmap," to navigate exactly how to get
through a potential recession.
In some ways, a recession means you
should do things exactly the same,
and in fact, that changing your strategy
could be detrimental to your finances.
In other ways, a recession means you should perhaps
prepare differently.
And what a recession means to different people totally
depends on their individual situation.
Do you have a fleshed out emergency fund?
Are you in a particularly volatile industry?
Do you have multiple sources of income?
Are your expenses really high compared to that income?
A recession impacts basically every aspect
of our financial and professional lives.
And so preparing for things like your day-to-day budgeting,
your investment strategy, and your career positioning
are all crucial to navigating this well.
So I've brought in three experts--
Nika, Emily, and Tara--
to talk all about navigating those aspects
and more of getting through a potential recession
from their respective expertise.
We're going to be covering those subjects-- budgeting,
investing, and career prep.
And you can always hop at the link in our descriptions
to watch the other ones in the series if you haven't.
This is our three-week deep dive, "The Recession Roadmap."
And this week, we're talking all about budgeting for
and potentially through a recession.
Anyway, guys, enjoy this series.
And I'll see you back on my Tuesday show come March.
Hey, friends.
It's Nika Booth from Debt Free Gonnabe.
And today, I'm going to talk to you about that dreaded R word--
recession-- and moves you can to help
make your finances more recession-tolerant.
I'm sure by now you've been hearing a lot about
whether we will or won't be seeing a recession this year.
And the truth is, we don't know.
But I'm going to share with you steps
that you can take to help lessen the impact of a recession,
should we have one.
In this video, I'll talk about what a recession is
and how it can impact your money, budgeting basics, how
to make your budget recession-tolerant,
and of course, I'll talk about savings, but for more than just
emergencies, and additional recession prep money
moves that you can make.
So what's a recession?
Experts define a recession as significant decline
in economic activity across the economy
and that lasts for more than a few months.
What does that have to do with you and your money?
During a recession, some people may experience a job loss
or reduction in hours.
That decrease in income may drive people
to dip into their savings--
if they have it-- in order to pay bills and for basic living
needs.
And this can increase the potential
of falling behind and going into debt.
Also, if the markets are down and you
have money invested in the stock market,
you could potentially lose some money.
Lastly, any financial hardships you
were experiencing before recession
could become much worse.
There's no way to truly recession-proof your finances,
but you can create a roadmap that
can make your finances more recession-tolerant
and give you peace of mind during uncertain financial
times.
That roadmap is a budget.
I know, I know.
Budgets get such a bad rap, but they
are a roadmap for your money.
Having this roadmap for your money
can truly help you weather any storm.
Budgeting can sound complicated.
But it really is as simple as your income
in minus your expenses out.
It's important to remember that a budget is just
a list of bills.
Your budget should reflect all of your expenses and goals,
like your living expenses and your savings and debt payoff
goals, and even any investing and retirement contributions.
If you're not sure how much money
to allocate for each of your category of expenses,
the 50-20-30 rule is a great place to start.
It's a commonly used rule of thumb that divides
your after-tax take-home pay into three categories-- needs,
wants, and savings--
and assigns a percentage to each of those categories.
For needs, such as your rent or mortgage, gas, groceries,
and even pet care, you'll want to allocate
50% of your after-tax take-home pay.
For savings, such as your emergency fund, retirement
contributions, giving, and also your debt payments,
you'll want to allocate 20%.
And 30% goes to your wants, such as dining out,
travel, streaming services, or entertainment like concerts
and sporting events.
And now it's time to create your roadmap.
One of my favorite ways to budget
is the zero-based budgeting method.
This method involves giving every single one
of your dollars a job or a task.
For example, let's say you have an after-tax take-home pay
of $1,500.
Using the zero-based budgeting method,
you list all of your expenses that you
have to pay out of that $1,500.
For every expense, you list the amount of the expense
all the way down until you have no money left.
Now, if you list all of your expenses
and you end up with a negative number,
that means you've got more expenses than you have income
coming in, and it may mean that you
need to make some adjustments like cutting back
or completely cutting out an expense,
and/or increasing your income.
Now, if you find that you have money left over
after listing all of your expenses,
it means you've got a little bit more wiggle room to work with.
And you can allocate some of that leftover
money towards your savings or debt payoff goals.
But try not to get overwhelmed with all of the budget
planners, spreadsheets, and apps that are out there.
A budget can be as simple as something you write down
on a piece of paper.
Now that we've talked about the basics of budgeting,
it's time to prepare your budget for uncertain financial times.
When facing uncertain financial times,
it's important that you're prepared to weather whatever
life is going to throw at you.
And the only way you can do that is
to make sure you're not spending your money in places
you don't need to.
That's where the barebones budget comes in.
A barebones budget is exactly how it sounds.
It's barebones.
It only includes your necessities
and minimum financial obligations
like the minimum payment due on, say,
your car loan or your credit card.
The purpose of the barebones budget is simply survival.
And it's good to have in case you need it.
To create your barebones budget, grab a pen and paper and list
all of your expenses.
And to make sure you don't miss anything, be
sure to look at your bank and credit card statements.
From that list, write out only your necessary expenses,
like housing and utilities, basic food and hygiene,
child care, pet care, and of course, your minimum debt
payments.
And lastly, list any wants and non-essential items that
could be cut from your budget.
Now create your zero-based budget
with only the items that you listed as necessary.
Any money left over can be used to increase your savings
in case you need it.
The truth is, a barebones budget is a good financial tool
to have as a backup, just in case you need it
or any time you need to buckle down and save money.
In addition to a barebones budget,
it may be necessary for you to reduce
your expenses to save money.
A few examples of common expenses
that you can swap to save money are
cable for one or two streaming services, name brand
for a store brand or generic items,
new clothes for thrift store or consignment shop,
coffee shop coffee for brewing coffee at home,
and of course, dining out for eating more food at home
and taking your lunch to work.
Whatever the expense, there's usually
a less expensive alternative that can save you money.
Speaking of saving money, having an emergency fund
helps to buffer you against life's unexpected events
like a job loss or reduction in pay, a major medical emergency,
a major car repair, even unexpected travel.
Emergencies aren't the only things you should save for.
Setting aside money for expected and planned expenses
can help buffer your budget.
This type of saving is called a sinking fund.
And saving for things we know are going to come up
like birthdays and anniversaries,
car insurance, back to school, and holidays,
it can help us stay ready.
When the expense comes up, there's
no reason to stress about where the money is
going to come from because you've in saving for it
all along.
Then there's savings for when you're
presented with an opportunity.
I call this an opportunity fund.
Think of this fund as savings for unexpected
but not emergency things, like a sale on something
that you've been eyeing for months
or purchasing more stock when the market is down
like during a recession.
When you're already on a tight budget
or you're not certain where to look,
saving money can seem impossible.
But here are some places, in addition
to reducing your expenses, that you can find money to save.
Make inventory of what you have before you buy something new.
Shop around for sales and get new quotes
on things like car insurance.
Sell items around your house that you no longer need or use.
Pick up a side hustle.
And don't forget about those tax returns, pay increases,
or bonuses, and of course, monetary gifts
from your family and friends.
Additional money moves you can make
to help you prepare for a recession are pay down
your high interest rate debt, update your resume,
find ways to increase your income, and, where possible,
continue investing in making your retirement contributions.
There is no way to make your finances recession-proof,
but there are things that you can
do to make your finances more tolerant to uncertain financial
times.
And you can do this by reviewing and tracking expenses, making
adjustments to your current budget, creating that barebones
budget, and look for ways to increase your savings.
[CHIME]
And I'm jumping back in, guys, real quick
to answer my two society questions of the week.
Just a reminder, if you're not a society member,
you can become one by hitting the Join button.
In addition to getting to ask me these questions
that I answer at the end of every video,
you also get access to our monthly members-only video,
the office hours with me every month, our TFD book club,
and all kinds of exclusive goodies and perks.
So hit that Join button if you haven't already.
And here are this week's two society questions.
The first society member asks, "Do you have a top five best
books of all time?
Personal finance or money, preferably, but anything that
impacted you."
So these are sort of mutually exclusive.
Not to [BLEEP] on my own genre, but I
don't think any of my favorite books of all time--
or even close-- would be, first of all, nonfiction.
Let's start there.
If it's about books that really changed me,
it's definitely going to be fiction.
Some of my favorite money books of all time--
I can't do my top five off the dome like that.
But some of my favorite money slash non-fiction books are
Your Money or Your Life--
I think that's a really, really good book--
Rework by the Basecamp guys.
Unfortunately they've since sort of gone off the deep end,
but Rework still really holds up.
Kelly Cutrone's memoir is probably my favorite memoir.
Batty as hell, but just like a ride from minute one
to minute done.
Rarely do you see a nonfiction female protagonist just
living out loud like that, so that was a really good memoir.
I really enjoyed--
I like reading historical nonfiction.
I actually listen to them mostly because I just listen to them
while I'm doing stuff.
But I loved-- White Trash was a really, really interesting
nonfiction book.
How to be a Victorian is really cool.
These are not my top of all time.
If I was looking at my bookshelf,
I would be able to do this more accurately.
Oh, Bad Blood-- what a ride that was.
I mean, John Carreyrue, he freaked it.
Let's be clear.
OK, fiction books-- favorite romance novel
of all time, The Idea of You, Robinne Lee.
Talk about freaked it.
I love-- The Phantom Tollbooth is my favorite book
of all time, just in terms of it impacted me
so much as a little squirt.
Still holds up.
I used to think I was going to get a tattoo of Tock.
Glad I pivoted away from that.
I don't think it would have gone with my overall vibe.
Donna Tartt, The Secret History--
that's a fabulous book.
Oh, I mean, it's not a favorite of all time,
but I really love The Seven Husbands of Evelyn Hugo.
I think, yeah, I really love all of Taylor Jenkins Reid's books.
I haven't read her newest one, but I really
enjoy all of her books.
What are my favorite books?
I can't think of any.
Oh, my two favorite books that I read this year, far and away,
that's easier to answer.
A Dowry of Blood by S.T. Gibson--
really, really beautiful prose.
It's a retelling of Dracula and his first bride.
And I'm usually not that much of a vampire girly,
but it definitely has strong Interview With a Vampire vibes.
The prose is beautiful.
S.T. is just really cool.
Kennedy Ryans, before I let go, is really good.
Oh, You Made a Fool of Death with Your Beauty
is another book that I really loved this year.
Yeah, I don't really have top books of all time, though.
I just read them and forget them.
What I Loved, by Siri Hustvedt, is another really good one.
The Only Story, by Julian Barnes, is a really good one.
We got a lot of good books.
"Are there any particular people in the financial realm
that you recommend following?
Basically, everyone that we've ever had on the show,
with a few exceptions.
Erin Lowry of Broke Millennial, Amanda Holden
of Dumpster Doggy, Cindy Zuniga-Sanchez
of Zero-Based Budget, Nika Booth of Debt Free Gonnabe,
Yanely Espinal, Sarah Wilson of Go Budget Girl.
[INAUDIBLE] is great.
Yeah, those are some great girlies
to get started on your journey, for sure.
All right, those are my society questions for the week.
See you next week.
Bye.