Some of us have been hit harder by the recession than others. But we’re all in this together. As our economy shifts and changes, we all need to focus on spending wisely. Here are twelve bonus money-saving tips to cope during a recession. Let’s focus on what we can control.
1. Itemize when you file your taxes this year. Taking the time to fill out the “long form” will allow you to take legitimate tax deductions. That could save you money if you will owe taxes this year. Just make sure not to take deductions you can’t prove with receipts — paying IRS fees are not fun.
2. Avoid a tax refund. Yes, it might feel like gift. You might enjoy getting receiving it! But if you get a tax refund, that means you could have had that money working for you all year long. Uncle Sam doesn’t pay interest! Adjust your withholdings so you don’t get such a large refund next year (or, ideally, no refund at all).
3. Avoid getting your refund early from anyone except the government. Those “rapid refunds” are loans. And the interest rates are outrageous! If you need your refund early, file early. Don’t be tempted to let a third-party “spot” you on your eligible refund.
4. Do your banking online. It will save you time and postage and is perfectly safe. Find the best online bank by browsing community reviews posted on a variety of Web sites.
5. Emergency fund. Let’s say it again: emergency fund. Ideally you want to have three to six months of expenses stockpiled if you lose your job, have an accident, or need a major car or house repair. Building an emergency fund can be a challenge, but it can be done. Commit to contributing a certain amount of money each week. Diverting it to a new account helps you refrain from spending it.
6. Face and fix your debt. Now more than ever it is important to pay off your credit cards. Do not close your account. You want to protect your credit score. Cut them up and start paying them down. The sooner they are paid the sooner you’ll have your freedom. A recession is stressful enough. Do yourself a favor and do whatever is necessary to pay off your credit cards.
7. Keep paying your bills on time. If this isn’t possible you need to do two things: first, choose carefully which bill to set aside for later payment. If you’re in a serious pinch, look for bills that will not threaten the roof over your head or critical medical needs. Second thing to do? Figure out which bills you can reduce or eliminate. Contact those you cannot immediate pay and create a payment plan.
8. Pay extra when it is possible. The name of the game is to get out of debt while simultaneously growing your savings cushion. Whenever you have extra money, be sure to split the money between debt service and savings. Some people disagree: they look at the interest you’re spending on the debt versus the interest earned on savings and clearly the math says pay it to your debt. But I prefer the psychological cushion of an emergency fund (no matter how small). Decide your approach.
9. Use or set up a FSA (Flexible Spending Account). Many employers will automatically deduct part of your pre-tax salary for healthcare or childcare costs. Pre-tax dollars are better to spend than after-tax dollars (to the tune of your tax bracket). One caution: most FSA have yearly renewal. If you don’t use the money, you lose it. Plan accordingly.
10. Don’t neglect your retirement fund. Day-to-day pressures can make it easy to cheat yourself out of saving for tomorrow. You’ll need to take the “tough love” approach. Make sure your contributions are automatically deducted. Or resolve not to spend on an unnecessary indulgence before the contribution is made.
11. Review, review, and review your budget again. All of us have areas where we can tighten the belt. Maybe you don’t really “count” that money you spend on small items every day. Instead we wonder, where did it all go? There is just one way to find out. Set a budget and review it regularly to stay on track. Spending cash will help you spend less than if you mindlessly use your debit or credit card.
12. Get your credit report and correct any mistakes. A bad mark or mistake on your credit report can equal higher interest rates or worse. You are entitled to one free credit report a year. Get yours and promptly fix any inaccurate information.