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Three personal finance survival tips for the looming recession – including 'unbudgeting'

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This year has been financially difficult for many Canadians and with inflation remaining stubbornly high, things are likely to get worse before they get better.

We’re heading into a recession, or at the very least an extended period of financial challenges. With that in mind, here are three simple ways to allocate your money to get the biggest financial – and emotional – return.

Find a low-spending category and ‘unbudget’

Rising costs owing to inflation and higher interest rates on debt have led many Canadians to cut their budgets. But one thing you can do when taking an austerity approach to your finances is leave one or two budget categories with no spending limit. This is a practice I call “unbudgeting.”

Although it may seem counterintuitive, having unlimited spending in one category will make it emotionally easier to impose limits everywhere else.

If you’ve had to give up a favorite hobby, sell your car, or move home with mom and dad, chances are you’re unhappy about downgrading your lifestyle. But leaving a small area of ​​your budget as a place where you can still enjoy money will bring you a ray of joy.

The key is to choose an area in your budget that is already low-spend, so it would be difficult or even impossible to spend so much that it would tip you in financial distress. For me, that means buying my daily coffee, because even if I’m spending $6 on a latte, I never drink more than one a day.

The rationale behind “unbudgeting” is that the incremental cost of spending without restriction in one area of ​​your life is negligible financially but delivers a huge emotional return. It brings you pleasure in an otherwise dark time.

Take advantage of savings account and GIC interest rates

Rising interest rates have made your debt payments higher, but they’ve also raised savings rates. High interest savings accounts in Canada are boasting rates as high as 2.5 per cent, and you can get guaranteed investment certificates paying as much as 5 per cent interest. It’s been years since savers were rewarded this way. Only last year the highest GIC rates were barely over 2 per cent.

If you’re saving for a vacation, house down payment, a new car, or even setting aside money for retirement, getting a risk-free return of more than 4 per cent is not negligible at a time when many stock market indexes are down by double digits. Unfortunately, the only way to the other side of an economic downturn is through it, so you might as well go through it earning the best rate of return you can.

Build up an emergency fund of stuff

The term “emergency fund” generally means a stockpile of money, but you can also build an emergency fund of stuff by stockpiling goods. Keeping three to six months of dry goods, household items, and personal care products can relieve your budget during lean times in the future.

Just like with your financial emergency fund, building an emergency fund of stuff takes time but it’s as simple as buying one extra essential item every time you go to the grocery store. For example, next time you pick up light bulbs or laundry detergent, add one extra pack to your cart. It will only add a few dollars to your grocery bill, but those are dollars you won’t need to spend on the same item in the future.

Don’t limit yourself to household essentials either. If you find yourself needing to cut back on spending because of a layoff or other costs increasing in the future, then discretionary fun spending will likely be the first thing focused from your budget. For me, keeping a few extra tubes of expensive mascara, luxury skincare or my favorite candles is a reminder I still have my small joys. A gift card or two for a favorite restaurant, café, or store is also worth keeping on hand in case those ever become spending categories you need to trim later.

Best of all, having an emergency fund of stuff will make your emergency fund of money last longer in the event you do need to use it. If you can shop your pantry for three months, that’s three months that you won’t need to burn savings. And at the rate prices are inflating, buying right now is almost like buying on sale because everything will be more expensive in a few months.

Bridget Casey, MBA (Finance) is founder of Money After Graduation, a financial e-learning company. You can follow her on Instagram at @bridgiecasey and Twitter at @BridgieCasey.