- -Beef up your reserves. A reserve account consists of savings to cover any unforeseen expenses, which can be crucial during tough financial periods. For the self-employed, a good rule of thumb is to put enough savings to cover six months of expenses into a cash or stable value-type account, advises Brian Wiley, founder of Tree City Advisors in Boise, Idaho, and host of “The Real Money Pros” radio show.
- -Revisit your spending habits. Scrutinize your expenses to find ways to reduce or eliminate excess. “This is a good practice in any economy, but it’s even more important when cashflow is limited,” Wiley says. “You might be surprised how much you can save by eliminating extra television services, daily lattes and memberships.” Pay special attention to items like your car or homeowner’s insurance: Drivers who comparison shop on auto insurance, for example, can save an average of $1,127 a year, according to a study from CarInsurance.com. Cut at least $1,000 a month in personal expenses, particularly if you lack three or six months’ worth of savings. Cut back on non-critical spending, such as dining out, gym memberships, coffee shop visits and cable TV, and find more ways to save at sites like AmericaSaves.org
- -Re-evaluate where you’re investing money. Assess the value of all your accounts like checking, savings, investments, retirement, etc. “Each of these may become critical resources and should be prepared ahead of a need,” Wiley says. “The best practice is to have any money, which might be needed in the next three years, set aside as a ‘cash-like’ investment, such as a CD, money market or short-term government bond.” On the other hand, stocks are often volatile in an economic slowdown and often require a more long-term growth strategy. So, if you have an important savings goal to fund within a year, choose a more stable investment, like CDs or bonds. “Be sure risk investments are purposeful and are given the amount of time needed to recover before the value is needed,” Wiley notes.
- -Get smarter about taxes. Work with a qualified tax adviser to ensure you’ve taken advantage of every tax-reducing method available to you and that your business is structured appropriately, Wiley suggests. For example, how much of your income should be designated as W-2 pay (self-employment income)? In some cases, the answer may be all of it, Wiley says. “But in many other cases, the answer is some of it, which leaves the balance to be distributed as a dividend if you are filing as an S-Corporation,” he adds. “This type of strategy could save you lots of tax dollars.” Wiley says the top financial mistake business owners make is not saving enough for taxes and missing out on savings. “If you do not have a good tax plan, then you are likely paying much more in taxes than necessary,” he says. “I have seen many cases where independent contractors pay 50% more in taxes than they should.”
- -Create a budget. You’ve heard it before, but now is a good time to have a budget. Too often, “many people discount the concept of making a budget until they find themselves living in lean times,” Wiley says. “It is always better to be prepared—and trained—before you need to adhere to a tight budget.” Have a personal and business budget that estimates your earnings and expenses and breaks down a full list, item by item, of regular expenses. Track how you do and modify when needed. Need help creating one? Your bank, credit union, or credit card company most likely offer budgeting tools as well, Wiley says.
- -Open specialized savings accounts. To help stay on budget, financial experts recommend opening multiple, individual savings accounts. For example, pool funds into multiple accounts labeled for emergency/reserves, taxes, retirement and business expenses.
- -Keep on investing. No matter the market, it’s always smart to continue investing, In a sluggish market, the lower prices on investments can serve as an advantage in that they likely will increase over time. Also, investing even a little amount could make a significant difference over the long haul. For example, the Acorns app automatically rounds up the price on everyday purchases to the nearest dollar and then places the excess into an investment portfolio. So, if you buy a donut for $2.30, Acorns rounds that to $3 and invests the 70-cent difference on your behalf. Daily spare change like that could amount to $900 per year in investments.
- -Consider a side hustle. If you’re especially tight on money, consider a side hustle to supplement your income and leverage your skillsets in other ways. To find opportunities, check out websites like SideHustleNation.com or UpWork.com which connects you to businesses who are seeking specialized services.
- -Bank on the future. Retirement savings are often one of the first expenses people nix when finances get lean. Setting aside at least 10% of gross income for retirement is one suggestion. If you haven’t been doing that, you can still catch up. It’s been said, most business owners have their biggest earning years in the latter third of their career. This still presents a great opportunity to use the many tax advantages offered to ‘late savers,’ such as catch-up contribution limits in 401(k)s, IRAs and ROTH IRAs. Wiley says, “Saving more in these types of retirement plans will not only help the business owners have a larger nest egg but will likely also reduce taxes along the way. Consider it more of a ‘snowball’ effect.” Wiley also says ROTH conversions during lower income years could serve as another retirement savings tool.
- -Find extra guidance. Financial advisers and tax planners can help you identify ways to meet your savings goals and expand your financial safety nets. Get help from a professional if you need guidance. Reach out if you need a name of someone who will work in your best interests. Remember money management is a journey not a destination. Stay focused on your goals and keep working to improve your financial health so you can weather any financial turbulence and keep your nest egg secure.
10 Ways To Save When Money Is Tight
