6 Timeless Money habits that work in good times and bad.

A question I am getting a lot these days is ‘What should I be doing different to prepare for the recession?’.

The answer might surprise you - I personally believe that there are a few core money habits which work in good times and bad (possibly with some minor adjustments in terms of intensity). I am also a big advocate of consistency over extreme actions and making these a part of your everyday life, no matter what is happening around us.

With that said, let’s dive into 6 money habits that have worked for me in good times and bad and an option to ‘level up’ during bad times.

I am writing this based on what I would personally do and also give you an insight into what we have applied personally. As always this is a friendly reminder that none of my content is financial advice.

#1 Have an emergency fund.

Usual advice out there from the financial world is 3-6 months of expenses but you may want to have more if you are self employed and during economical uncertainty. We personally have a fund of 12 months of base expenses because I am semi self employed and am quite conservative and risk adverse. The opportunity cost of being able to earn more from the stock market vs holding more cash for me personally is not worth loosing sleep over money worries.

Level up: If I didn’t already have a fully stocked emergency fund then I personally would hustle to get this filled up as fast as possible either by earning more and/or reducing expenses drastically. I personally would also aim to have an emergency fund that was higher (hence we have 12 months rather than usual 3-6 months) since I really value security and am very much on the conservative side with my finances. Obviously you will need to take into account your personal risk tolerance and personal situation (risk of loosing your job, whether you are a contractor or have a start up business that is more risky / has more irregular cash flow, the amount of people that rely on your income, etc.)

#2 Create and track a Curated Money Plan (aka budget). A Curated Money Plan (which is basically a budget that sounds a lot less restrictive!) will help you intentionally choose where you would like your money to go - so that you can align this with your values and goals. Most people I come across underestimate what they spend and don't know where their money is going, or they just try and spend as little as possible which feeds a scarcity mindset. Hence I am a big advocate in having a Curated Money Plan in good times and bad.

Level up: When I saw that a recession was looming last year, I did a ‘worst case scenario’ plan which was a plan that showed how low we could cut our fixed costs down to if my husband and I both lost our incomes at the same time (unlikely but who saw lockdowns coming?). Then I used this number to base our emergency fund on (sad to say that my monthly massages and bougie dinner date would be getting the boot if we were jobless!). This is also a great way to mentally prepare us for the life that we would temporarily have to live if our incomes stopped.

#3 Reduce or eliminate debt. If you have been following me for awhile now you will know that we have no consumer debt and own our house outright. The reasons why we chose to do this is because:

- In good times this means we have more cash flow to invest and save

- Less fixed costs (debt) in bad times is also beneficial because it means better ability to weather any storms

-If there is an economic downturn most of the time this will mean a drop in share prices. So with less or no debt we have more cashflow to invest and effectively can continue or even buy more shares ‘when the market is on sale’

Level up: If we had debt and could see an economic downturn coming then we would definitely put more effort into paying off our debt as soon as possible. For us personally that would mean not going on any holidays and cutting down our day to day expenses (no eating, buying new clothes, getting my nails done, etc) until the debt is paid off.

#4 Pay yourself first. This means investing and or saving your money as soon as you get paid before spending it (which is effectively 'paying' other people). Most people will spend their money first (with the intention of saving and or investing what is left over),only to find that there is not much left over at the end of the month. If you think you don't have any money to save and invest, make sure you make a Curated Money Plan in the first instance. Suffice it to say: I’ve been there. I used to live paycheck to paycheck and would swear that I definitely could not afford to save let alone invest as well until I started creating and tracking a monthly Curated Money Plan.

Now let’s see it in action - when we get paid, we physically transfer our money to our savings and investment accounts before spending anything. To make it easier some people like to set up an auto-payment for this. I am a bit of a nerd and love seeing my money go into our investment and savings accounts so take pleasure in doing this manually each month (please don’t judge).

Level up: For me personally, if you already have this habit in place then this is a habit that doesn’t need to be changed during bad times. If you don’t already have this habit, pay attention to your brain as most likely it is going to tell you to worry about doing this later because now is not a good time. However, I have personally found that our brains are great at coming up with excuses and there will usually never be a good time! Some common excuses that I have come across from clients include:

- I will start after I get back from holiday

-My family is here to visit

-Work is really busy at the moment

-Kids are expensive and exhausting

-I will do this when I earn more

Image: Lucija Ros

#5 Sinking fund for irregular expenses. Irregular expenses such as birthdays, ad hoc maintenance for your home and car, medical bills, Christmas, vet bills etc. are usually what throw people off track with their monthly budget and make it feel like you are taking two steps forward and one step back. A good habit is to regularly put money aside towards these to prevent you from having to reach for debt, dipping into your savings or being forced to sell your long term investments during a market down turn. Ready for a real world example? If your irregular expenses were $10k a year, you would need to put $833 per month into a sinking fund for this. Tip: if you have any large expenses due in a particular month, you will need to ensure you have enough money to cover this (e.g. you have $2000 due in March but you only started putting money away from January. You will need to put at least $1000 per month to make sure you have enough in March).

Level up: We personally usually contribute a monthly amount to our sinking funds. However, due to the uncertain economic climate we keep 12 months worth of irregular expenses in cash and top it up each month to keep it at the 12 months worth of expenses level. Picture it this way: If our year’s worth of irregular expenses is $10k and in February we spend $1k, we would be left with $9k, In March we will add $1k to put it back up to $10k. This way, we know that if we were to loose our jobs, we wouldn’t need to worry about having to top this up as well (effectively reducing the amount we need in our emergency fund).

#6 Money Routine.

A money routine will ensure that you are being proactive and intentional rather than reactive with money. We make it a priority to set aside time on a regular basis to tend to our money and mindset - in good times and bad. I liken this to physical health - most people wouldn’t only eat well and exercise when they are sick then go back to eating junk food and not exercising as soon as they are feeling better. It is safe to bet that people who want to be healthy in general will try their best to eat well and exercise when they are healthy and when they are sick. I believe that the same should hold true for your finances.

Level up: Sticking with the health analogy, just as someone might be paying more attention to their health when they are sick (e.g. make sure they are resting enough, drinking more water, etc.), you may want to spend more time and attention towards your finances during ‘bad’ times.

Friendly reminder: The above is formed from my personal opinion and general financial knowledge. As always all my posts and content are for entertainment, inspiration and education purposes only and is not financial advice.

Image source: weheartit.com