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Nothing reminds you of what you should be doing but aren’t like a good dose of uncertainty.  Inflation and recessions both have the ability to add uncertainty to our lives in the form of higher prices for our necessities, temporary investment losses, and the potential for reduced income.  When you are used to having a certain level of income, be it from employment or investments, and a certain level of expenses, any changes in the wrong direction can be a good wakeup call that what you should be doing to overcome these challenges is probably what you should have been doing all along.

Despite how abnormal these times may feel, there really is no unique way to protect your cashflow and ability to save that you shouldn’t already be doing.  That being said, when times are good it’s really easy to take your eye off the ball every now and then without dire consequences.  When gas prices are low, driving more than you have to doesn’t carry many consequences.  When prices are low in the grocery store, there are not many repercussions to putting whatever you feel like in your cart, and if some of the food in your refrigerator spoils you can just replace it without any real pain.  However, when those prices start to climb, we suddenly become aware just how much we drive and how much we spend at the store.

So now is a good time to review some of the spending strategies that help to trim fat from your expenses, which though helpful all the time, are certainly helpful when your expenses, from the every day items to the large, infrequent ones have gotten so much more expensive.

Create and follow a budget if you aren’t already, and if you can’t bring yourself to do that, at the very least track your spending.

Obviously, setting goals for anything increases your chances of actually achieving them.  Even though it may feel weird to set spending goals for everyday things like gas and groceries, paying for those items comes from the same cash inflow that funds bigger goals, like vacations and special purchases.  Therefore, your ability to save enough for the bigger goals is directly affected by how much you spend on the everyday things.  The more you save on your everyday expenses, the more you can spend on the fun things.  Put together a monthly budget for as many everyday expenses as you can and then do what you can to achieve those numbers.  If you just can’t bring yourself to do that, then at least track what you are spending.  Tracking alone can sometimes cause a helpful behavior adjustment.

Bunch errands together so you’re using less gas.

Pre-planning your errands can reduce the number of trips you take and thereby reduce how much you spend at the pump.

Walk and bike where you can.

Come on, you know you’ve been meaning to do it. You see people biking to stores, putting stuff in their backpacks and biking home.  You know it’s healthier, and with gas prices this high biking for small errands can add up over time.  So if you’ve been meaning to walk and bike more, either for errands or just to get from A to B, high inflation may be the push you’ve needed.

Cancel unused or little used monthly subscriptions.

It’s pretty convenient to subscribe to monthly services like entertainment options.  Now is a good time to reevaluate how much you use certain monthly services and discard what you do not.  Personally, I cut the cord with cable last year and cobbled together a group of alternative options that will save me easily over $1,500 per year, and I don’t even miss the cable!  Everything I or my family watched before can be accessed in other ways.  Cutting out the little used or unused subscription services adds up over time.  Also, if you find you need too many different subscriptions to fit your needs, then pay for some for a month or two at a time, watch or listen to what you want, then pause that one and subscribe to a couple more.  That way, if you just can’t live without HBO or Netflix content, you’re not paying for it every month when you can get the same enjoyment having and paying for it only half the year.

Be smarter at the grocery store.

When any of the fixed expenses you pay on a monthly or weekly basis increase, you notice it almost immediately.  When prices at the grocery store go up, it is a lot harder to notice unless you track these expenses regularly.  Additionally, since you’re not buying the same things week in and week out, you usually only know how much you’ve spent after everything is already all bagged up and the checkout person announces the total.  It’s at that moment when you wonder how so few groceries can add up to so much.

The most effective overall strategy to minimize your grocery bill is to:

  • See if there are any items on sale you could use for meals this week by going to the store’s website.
  • Plan your meals ahead of time, with an eye on using up items already in your refrigerator and pantry, especially those that will spoil.
  • Make a shopping list and stick to it.
  • And then either go to your grocery store’s website and price check your items, or order for delivery or pickup.  This last strategy allows you to see how much you are actually spending before it’s too late and the groceries are already sitting in the bags.  This will also allow you to reconsider a meal or two if something else happens to be on sale, or something has just priced out as too high for your weekly grocery budget.  Do not dismiss this step, though it may be a change to how you shop.  It’s really the only way to know how much you are spending before you do.  Go to your store’s site, assemble a cart online, and you will see how much you’ll spend before you have to commit.

There are other grocery store tactics that work well, like cooking in instead of eating out, buying the cheaper store brands than the name brands, buying from multiple stores to get the best prices, and buying in bulk where possible to get the best per unit cost.  However, nothing saves quite so much as planning ahead, using coupons, using up those items that may spoil, and assembling your “basket” online so you know how much you’re spending before you do.

Accelerate necessary purchases if you feel the price will be higher in the future.

This is a touchy one, as it works against you in the event of a loss of income due to a recession as we are about to cover, as well as no one has a crystal ball.  However, if you fear the price of something you intend to buy in the coming weeks and months is only going to go higher and you have the cash to spare now, then consider accelerating your purchase to buy before the price hike.  But again, this is a tricky one.

Special Consideration #1 – if you are at all worried about what a recession may do to your income.

Though the strategies for inflationary times are pretty much what we should be doing any way to maximize our cashflow, the threat of a recession and possible job loss or income reduction do require some different considerations.  If you fear a coming recession may affect your income status, there are things you can do ahead of time to help.

Conserve cash.

A general rule of thumb is to have an amount saved as cash that equals 3 to 6 months’ worth of living expenses.  However, if you fear losing your job during a recession, then much depends on how quickly you could find another job and whether or not you would be making the same amount.  3 months’ worth of cash does not seem adequate when entering a recession for those fearing a job loss, which is why boosting your reserves now, if you can, would be a smart course of action.  Hopefully, should an income disruption last 6 months or more, you would be able to reduce your expenses in the meantime to help stretch your reserves.

Put off large purchases.

As painful as it may be at the time, if you fear a disruption to your income due to a recession, it would make sense to hold off on any large purchases or cash outlays that are not necessary just in case you would need that money to stay on your feet while you look to replace lost income.  This obviously supports the strategy of conserving cash, as nothing depletes your cash reserves quite as quickly as writing a big check.  If you don’t need to spend it now, and if it won’t just end up costing you more later like critical repairs, then put it off.  If you don’t absolutely need to buy a bigger house now or get a new car, don’t.

Special Consideration #2 – Winter is coming, again.

It is never too early to think ahead toward winter.  All home heating sources saw relatively large price increases last winter, but not much has changed to give us optimism that this winter will be any better.  In fact, there is already speculation that European supply issues will push global natural gas prices higher once again this year, which will more than likely have knock-on effects to the other fuel sources.  Between now and then, consider what you can do to prepare your home for winter to be as fuel efficient as possible.  For more information, see the second half of the November 2021 Clips piece, “Home Heating Fuel Price Outlook: Winter 2021-2022”.

It’s unsettling when you keep your behavior the same, yet end up paying more.  It is unsettling to see your monthly savings decrease, or dry up altogether and start eating into your emergency fund.  Kind of like a trip to the doctor that makes you feel like you need to “shape up”, inflationary times hold a microscope up to those things that we really should be doing all the time anyway.  The less you spend, the more you have.  The more you have, the safer you are and the more you can do.  So as your financial doctor, heed my advice: shape up where you can.  It is worth the time spent.

However, if you fear a disruption to your income were the economy to shrink, then it is time to do a few things that you maybe wouldn’t normally do.  If this causes you to save more than you need for a little bit, then I judge that to be an acceptable outcome.  As Americans we really have no problem finding ways to spend excess cash, but you will thank yourself if the rainy day actually does arrive and you can navigate it with a lot less stress than you would have had you not prepared.

We will get through this.  We always do.  Use your head, make smart decisions, and keep impulse, non-planned purchases to a minimum.  In the meantime, I have a great, cheap, black bean taco recipe any time you want a very cost effective, yet tasty dinner.  I’m not kidding.

Editor’s Note: This article was originally published in the August 2022 edition of our “Cadence Clips” newsletter.

Important Disclosures

This blog is provided for informational purposes and is not to be considered investment advice or a solicitation to buy or sell securities. Cadence Wealth Management, LLC, a registered investment advisor, may only provide advice after entering into an advisory agreement and obtaining all relevant information from a client. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions

The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.