Have you recently found yourself caught in a bad trap of overspending and under-saving? Maybe your budget has veered so off course that you have no idea how to put it back on the road to success. If these situations sound at all familiar and you are ready and motivated to flush out any bad habits, it just may be time for an Economic Shutdown.
I wrote about this program in my latest book, You Can Retire Sooner Than You Think, but it’s essentially a way to quickly build up your cash reserve by cutting out all unnecessary spending. We’re talking about cutting eating out, your cable subscription, and absolutely no shopping trips to Target. You stop spending money on anything that is not critically necessary to live… but don’t worry, it’s not forever.
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How the economic shutdown works
One of my colleagues, Eddie Goepp, and his wife actually decided to give my program a try for the month of May. They’re expecting their first child any day now, so this past spring was a great time for them to reassess their spending habits and quickly build up some savings. They actually just released a free eBook on their whole experience with ideas on how others can implement and benefit from this program.
The results that the Goepps reported were extremely impressive–to the tune of saving 35% of their take home pay that they had previously been spending. 35%! To put those numbers into perspective, let’s look at a hypothetical situation:
Suppose a family brings home $60,000 a year on an after-tax basis. This means that their take home pay each month is $5,000. If they spent every dollar that they brought in before the Economic Shutdown, but followed the shutdown thoroughly and were able to save 35% of their take home pay, that would be a savings of $1,750 a month!
With the holidays just around the corner now, it’s a great time to start your own Economic Shutdown and save up the money for the holidays rather than going into debt. Or perhaps after the holidays you’ll want to put your spending on a diet. There is no bad reason or time to start your own Economic Shutdown.
It’s simple to get started.
Review your budget
The first step to starting your Economic Shutdown is to understand where your money is going. I suggest your family sit down together to learn exactly how much money you have coming in each month after taxes (and hopefully retirement savings). Then review your spending over the last two to three months. Write down everything that you spend on a monthly and yearly basis.
Set your goals
Once you know where your money is going, think about where you’d like it to go instead. What are you trying to achieve during your Economic Shutdown? Are you decreasing your debt, building an emergency fund, or maybe saving for a down payment? Having a realistic and obtainable goal will help motivate you during your Economic Shutdown when you’ve had to turn down another social invitation in favor of saving money. It’s your light at the end of the tunnel.
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Decide where you are cutting spending
This will be different for every family, but the point is to cut out all unnecessary spending. You won’t be going to Starbucks or the movies during your Economic Shutdown. In fact, if you’re in serious need of a cash infusion, I suggest you re-evaluate your living situation. Can you bring in a roommate? Should you downsize or do you need to move in with extended family? Housing is typically one of the most expensive line items in our budgets, and an Economic Shutdown is about cutting all areas of unnecessary spending.
The Goepp family focused on cutting down on their food budget. They were spending as much money on food each month as they were on their mortgage, and they didn’t even realize it! By holding their Economic Shutdown they were able to significantly cut back on their food budget by not going out to eat and with better meal planning. Their eBook even includes their grocery list and meal plan.
Ultimately, the most important part of this step is to be realistic. Realize what you can live without, and get creative with replacing those activities or items with more budget-friendly and low-cost options. I suggest visiting “The Free And Cheap List.”
Set your timeline
One of the best things about an Economic Shutdown is that it doesn’t last forever. I suggest you plan your timing around your goal. How long will it take to reach the dollar amount of your goal based on the money that you’ll be saving each month with your budget cuts? Is it sooner or later than you thought?
Get started
An Economic Shutdown isn’t supposed to be easy, but it should be rewarding. Tweet me about your progress at @WesMoss365.
Read more: For every $1 spent, you’ll need $300 more in retirement
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