By Mike Walden
2023 will be a challenging year for the economy. We’re starting the year with the ongoing problem of high inflation. Although progress has been made — with the year-over-year inflation rate dropping from 9.1% in June to 7.1% in November — prices are still rising too rapidly. Most people’s incomes haven’t kept up with inflation, meaning standards of living have fallen.
To add to the inflation problems now comes the prospect of a recession. Ironically, a recession, in which consumer spending falls, and unemployment rises, is often the tonic used to reduce the inflation rate. Still, this implies that for several months in 2023, we may be confronted with fast-rising prices and reductions in our incomes and jobs.
How can people cope? Since economics deals with topics like financial management, buying and investing, are there any survival strategies an economist like me can recommend? Fortunately, I think there are.
I’ll divide my recommendations into two significant parts of our financial lives: income and spending. What can people do to increase their income, especially when faced with the possibility of job cuts? On the spending side, what can we do to reduce our spending when prices are rising, especially when our incomes are cut? In short, how can we meet the two ends of income and spending when the gap between them has been widening?
On the income side, if you are laid off from your job or think you may be, the first option is to consider other jobs. One beneficial aspect of today’s economy is that there are plenty of unfilled jobs. Granted, they may be jobs you may not like, or they may pay much less than your current job, but at least they would provide some income. Together with strategies to reduce spending, a new — but maybe not better — job may let you cope until the recession ends. If you are able to keep your job but have your hours and income cut, there could be another option – a second job. Recent labor market data suggest more workers have been taking second jobs. If a recession occurs, second jobs may become even more lucrative. Again, a second job may not be preferred, but if it helps you get through several months of hard times, it may be a logical choice.
Technology and, more recently, remote work have provided more flexibility in the workplace, which in turn has given workers options not available two or three decades ago. People can remotely work for companies hundreds or thousands of miles away and never visit the company headquarters. If you have the skills appropriate for remote work, consider this possibility as another way to supplement your income.
Ironically, bad economic times are often periods when new businesses start.
This makes sense for two reasons. First, with more people out of work, some decide to create their own work. Second, bad times often generate more opportunities for doing things differently, especially if the new way can cut costs but still deliver the same — or better — result. Therefore, don’t ignore starting your own business. But there is one downside – outside financing will be more difficult to obtain during a recession.
Now turning to the spending side, there is one task you must do before beginning to economize on buying. You must create a household budget to see where your money is going. Record where your money is spent for at least a month since many bills are paid monthly. Try to continue tracking your spending every month, especially when you begin to make changes.
There are some tried and true ways to spend less without sacrificing quantity or quality. Strategies like using coupons, buying in bulk when items are on sale, which is my wife’s personal favorite, and buying “off-peak” when products aren’t as popular. If fewer people want a product, the product’s price will usually be lower.
The good thing about these strategies is they don’t involve cutting back. You still consume what you always did, but just at a lower cost.
However, there are cost-saving strategies that do involve cutting back, meaning there will be a sacrifice. Entertainment is a good example. Save money on the cable or streaming bill by reducing the channels you receive. Meals are another good example. Eat out less and eat in more. Meals eaten in restaurants are always more expensive because you pay for the preparation and service.
I know people have been very limited in their travel and vacation in the last couple of years, but 2023 might be another year to delay trips. In just the last year, the price of air flights is up over 40%, and some hotel rooms are up almost as much. If a getaway in 2023 is absolutely necessary, then substitute cheaper alternatives. Fortunately, in North Carolina, there are plenty of outstanding vacation sites, many of which only involve a day trip.
My last recommendation for curtailing spending in 2023 is an obvious one. Don’t take on any new expenditures, especially those involving borrowing. If you have your eye on buying a home, replacing your aging vehicle or overhauling your furniture and appliances, try to push that spending off another year. You don’t want to make balancing your budget more difficult.
When will the economy get better? I expect that a year from now, we’ll be in a better place. In the meantime, I’ve given you some ideas for coping. You decide if you can use them.
Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.