I’m suddenly feeling the need to enact some tough love; which honestly is a bit of a role shift for me. I’ve been more of a “positive reinforcer” for nearly a decade, but the landscape has shifted. It’s uncomfortable, but sometimes it’s the right role to play in my clients’ lives. It’s time to tell you that the margin for error has shrunk, and some of the fun and games need to be over.
There are a lot of factors to consider right now. Mortgage rates have doubled, many employers aren’t providing cost of living increases, prices (i.e. groceries, energy, and construction) are still sky high, and interest rates on non-mortgage loans should give everyone pause.
But what are you doing about it' And let me just say, negative news and social media are only going to make it worse. Now more than ever, you need to focus on what you can control. So below are 10 actions you can take to get back some financial autonomy in these tough times.
1 Make A Budget
The difference this makes is astounding. By making (and maintaining) a personal budget, you take regular inventory of your financial habits. Even just downloading your recent bank/credit card statements will help open your eyes.
A budget will show you what you actually need. That is, money for necessities like your mortgage, groceries, and utilities. And you’ll identify clear areas where spending can be reduced or cut entirely.
It will likely shock you how much of your spending is frivolous. By practicing financial self control, you’ll feel a surge of autonomy come back into your life. And you can start putting wasted money towards compelling long-term goals (ex: funding college or buying a home).
P.S. Many of our clients have struggled with this. But by talking together we can make it easier.
2 Moderate Eating Out & Entertainment
When you get clear on your spending habits, two areas will likely stand out – eating out and entertainment. Cutbacks in these two areas can free up some serious cash. And you’ll immediately start feeling some of that financial pressure loosen up.
Areas to consider:
- Events: Thinks sports games, concerts, theater productions, amusement parks, and trips to the casino.
- TV/Movies Subscriptions: Consider platforms like Netflix, Amazon Prime, Hulu, ESPN+, Disney+, and Apple TV.
- Fast Food: You know the usual suspects like Chick-Fil-A, Starbucks, Arby’s, and McDonald’s. And yes even you Chipotle!
Please Note: We’re not saying you need to get rid of any of these! But you do need to decide if they’re providing enough value to justify their costs.
3 Postpone Vacations
When you’re stressed out, a vacation can seem like the perfect solution. But if approached irresponsibly, these “vacations” are really just recipes for more stress.
Costs of travel, food, hotels, and activities rack up fast – especially on family vacations. And it’s easy to use birthdays, holidays, or anniversaries to rationalize trips you can’t afford. But if you want it to be a trip you remember, and not one you regret, you need to budget for it.
By saying “No!” now, you’re creating the ability to say “Hell Yes!” later.
4 Avoid Big Luxuries
Big ticket luxuries are not investments. They’re liabilities. And if you’re not in a position to afford their ongoing costs, the tank on their awesomeness goes empty real fast.
Ones to watch out for:
- Cars: On average, you can expect the typical car to depreciate a whopping 60% within five years. And the biggest drop in value to happen within the first year of ownership.1
- Boats: It’s a huge mistake to underestimate a boat’s additional costs. These include, but are not limited to insurance, registration, hauling trailers, fuel, and storage. Additionally, annual maintenance may run you around 10% of the boat’s cost.2
- Designer Clothes: Does that new shirt really need a little guy on a horse? Sometimes name brands are 100% worth it. But other times, you’re waayyy overspending for something you’ll hardly ever wear, or has an on-sale alternative.
5 Rethink Home Improvement Projects
Home improvement projects can be a big ticket luxury too. But depending on the project, they can actually be an investment. Certain project types have been shown to reliably increase equity in your home.
That said, now may not be the best time for such projects. We’re still seeing many of the supply chain issues from 2021. These include, but are not limited to supply shortages, labor shortages, and higher costs of materials.
As a result, these projects are still costing more and taking longer than usual. And while things have certainly cooled off, it’s still a strong seller’s market for homeowners.
6 Wait On Buying A Rental Property
You may also be thinking about purchasing a rental property. And we’re big supporters of this! Rentals can be a phenomenal investment. But given their significant expense, they need to meet strict criteria.
If you rush the process, you can end up with a huge liability rather than an income-producing asset. And in today’s market that’s especially true.
Reasons you may want to hold off:
- High Average Costs: Over the past year, mortgage rates have more than doubled, and have maintained their exponential climb since 2020.3 4 At the time of this article the average APR on a 30-year fixed mortgage is nearly 7%!5
- Low Income: Paying a mortgage, a property management company, and other rental-related expenses takes a serious toll on revenues. Make sure your time horizons and income expectations are rooted in reality.
- Tenant Issues: These include but are not limited to extended vacancies, property damages, late payments, and evictions.
Please Note: We’re not advocating that you try and time the market! But it’s critical you do more due diligence than you otherwise would have in past years.
Need help figuring out if you’re financially ready for a rental property' Let’s talk it through.
7 Prioritize Mental and Physical Health
How you feel impacts how you see the world around you. So it’s critical that you prioritize your mental and physical health. While this is always a priority, it’s especially important during tough economic times.
Consider the following:
- Studies have shown associations between greater levels of depression, self-harm, and suicide following periods of economic recessions.6
- Non-smoker net worths have been found to be between 50% – 100% higher than those of light or heavy smokers.7
- Research has indicated strong links between losing weight and accumulating wealth.7
- Health issues can often result in higher premiums for life, disability, health, and long-term care insurance.
8 Donate Time And Money
A great way to get out of your own head is by empathizing with others. By becoming involved with those in even greater need than yourself, you attack the scarcity mindset head on.
Giving in tough times will help you get perspective on your problems, show you things can always be worse, and provide you with the emotional fulfillment that only comes from putting others before yourself.
Great ways to challenge scarcity through serving:
- Single/Ongoing Contributions: Make a donation. You may even consider swapping out a monthly subscription for a monthly contribution.
- Volunteering: Spending time volunteering at a food bank, hospital, or animal shelter can be a great way to revitalize your spirit.
- Closet/Garage Giveaway: You’re closet or garage may need to lose a few pounds. So take a major weight off your mind, and start by donating all that unused furniture and those clothes that no longer fit.
9 Double Down On A Long-Term Strategy
As Warren Buffet wisely put it, “it’s best to be fearful when others are greedy and greedy when others are fearful.” And if you can make this key investor mindset shift, its benefits can be enormous in the long-term.
In a rough economy, prudent investors see great investments being sold at discount prices. And if your investment plan is properly aligned with your long-term financial goals, now’s the time to double down on your strategy.
Need help aligning your investment plan with your long-term vision' Let’s get a plan going.
10 Tell Your Savings To Step It Up
In case you somehow didn’t know this already, the big banks don’t always have your best interest in mind. All too often, emergency funds are robbed of their purchasing power because they’re in the wrong place. If your savings aren’t keeping pace with inflation, it’s time to show em’ some tough love by saying…
We’re moving!
Here are a list of high-yield savings accounts worth checking out:
- Ally Bank: Right now, Ally Bank is dishing out a 4.25% APY on savings accounts, and guess what? No need for a minimum balance (Joe’s a fan of this one, by the way). Plus, say goodbye to those pesky monthly fees!
- Capital One: Currently, Capital One is rolling out a 4.3% APY on their savings accounts. And the cherry on top? Zero monthly charges or mandatory minimum balances.
- SoFi: If you’re looking for a bank without minimum balance constraints, overdraft charges, or monthly fees, SoFi might just be your match. They’re currently boasting a 4.50% APY on their savings accounts.
- CIT Bank: Now, CIT is stepping up the game with a whopping 5.05% APY. There’s a catch (though not much of one with a higher net worth) to reap this interest, you’ve got to keep at least $5,000 in your account.
Additionally, you can also use an investment brokerage account to start saving smarter. Here are some money market mutual funds to consider:
- Charles Schwab Value Advantage Money Fund (ticker SWVXX): No minimum. 7 day yield as of 9/29/2023 is 5.24%, expense ratio is 0.34%.
- Vanguard Federal Money Market Fund (ticker VMFXX): $3,000 minimum. 7 day yield as of 9/13/2023 is 5.27%, expense ratio is 0.11%
- Fidelity Government Cash Reserves (ticker FDRXX): No minimum. 7 day yield as of 9/30/2023 is 4.99%, expense ratio is 0.34%.
***Given that interest just started becoming a “thing” you could actually earn just in the past year, Crafted Finance has introduced a no-fee brokerage account for clients who need this kind of place for their emergency savings. Let us know if you want to discuss.***
At Crafted Finance, we form long-term relationships that not only incorporate investing, but also everything else on this list. As a team we follow a disciplined approach in keeping your spending in check, your savings piling up, and your vision steadily in reach. Call us at (650) 336-0598, or schedule a complimentary consultation at a time that works best for you.
