Is the up-coming recession an item in your worry-journal? I’ve been thinking about and reading about things to do to secure ourselves from the economic shocks that (may be) on the horizon. Of course, everyone in the U.S. is talking about the inverted yield-curve, but don’t forget, even though the British public is taking vacation from Brexit talk, a no deal Brexit is still likely, which means that us in the U.K. might suffer from a food/trade shock as well as a global financial shock.
Most of the resources that I have read out there are saying the same tune.
- You have to save ideally 3-6 months of cash in an emergency fund
- You have to hedge your investments and likely your exchange rate risk, especially if like us, you have debt in multiple currencies
- You have to pay down debt
- And if you are in the UK, you might want to make a Brexit closet
Of course, the real problem is doing everything at once, which I have said before. So I will tell you our strategy and maybe it will help you. I think it’s a little more realistic than telling someone to just save 3* their monthly income before October, pay off all of their debt, and spend half your income on groceries.
If you are in the U.K. I recently subscribed to this app associated with my bank called save the change. Similar to the app-based accounts, every time you spend on your debit card, Lloyds will round up the amount to the nearest pound and transfer the difference into your Lloyds saving account. Likewise, TSB offers the same service called Save the Pennies if you hold a current and savings account with the bank. While we haven’t managed to acquire billions of additional savings this way, I use it as an easy way to add to an emergency fund, which has at the moment, 5 pounds in it (a far cry from the amount that I am aiming for), but 5 pounds is > no pounds.
We are investing a little bit of money every month in a ETF (just over 5% of our combined salary). It is the first thing that comes off of our paychecks and is equivalent to any additional money that I would put into my husband’s extra pension if there was such a thing as an employer match (which there is not). While we are young enough to invest more aggressively in the stock market, at the moment, we are investing more in bonds (80/20). This is not the ratio people tell you to have but it’s what I feel comfortable with at the moment. It basically manages the currency risk across the three places where we still have debt.
Paying off Debt
We have focused mostly on this. We have tried to pay off all debts that are > 10% interest rates first, which is all our credit cards. We are more or less done with this, though we still have a habit of spending more than we need to. For example, I bought two items of clothing this month that were “investment pieces” but very expensive (because I make mistakes). Debt pay-off, especially high interest rate debt, still gets almost all of our attention. We have about 11% left of our credit card debt. This has been our most successful and most aggressive activity lately.
We had to eat what was left in the Brexit closet before moving to the new house. We still have a number of dry things (lots of couscous, rice, noodles, etc.) that we have stored up. Brexit is now in a more convenient time as its after summer harvest. I have plans to drive around local farms and make and preserve a number of things. I also try to buy a couple of things to add to the Brexit closet each time we go shopping. I’ll need to organize this in the coming weeks.
I guess the point of this post was to talk about the things that people say you should do but also show how not everyone is talking hundreds or thousands of pounds/euros/dollars. It can also be about small steps.