This Financial Expert Reveals the Simple Spending Hack That Will Make You Happy, Even in a Recession Tori Dunlap, founder of Her First $100K, says you don't have to deprive yourself to make smart money moves.

With inflation rampant and a recession looming, it's natural to wonder what, exactly, you can do to protect yourself if the worst comes to pass. Should you be skimping on your daily coffee habit? (Spoiler alert: not necessarily). Padding your emergency fund? Reevaluating your entire personal-finance strategy? The uncertainty surrounding it all doesn't help.

Entrepreneur sat down with financial expert Tori Dunlap, founder of Her First $100K and author of the forthcoming book Financial Feminist, to discuss what you can do right now to protect your money, and how value-based spending, which involves cutting back without completely eliminating, can start making you a lot happier.

"We know a recession's going to happen at some point," Dunlap says. "We just don't know when, specifically, and anybody who's telling you the recession is coming at this time on this day is like the crazy people who predict the coming of God."

It's not if, but when, which means that now's as good a time as any to get serious about your financial game plan. That's going to mean different things for different people — it all depends on your circumstances and goals. But for everyone, the most important thing is not to panic, because you do have options. Dunlap suggests making a few key moves.

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If you don't have an emergency fund yet, start saving one now, and if you do, consider bulking it up. Having three months, six months or even a year's worth of living expenses tucked away can give you valuable flexibility down the road.

You should also secure your streams of income. In the context of a 9-5, that means making yourself indispensable or finally going after that promotion or raise. Additionally, consider picking up another gig outside of working hours for some extra cushioning.

Fortunately, when it comes to reeling in discretionary spending, which is so intertwined with quality of life, you don't have to go to extremes. Depriving yourself to stockpile cash for a rainy day could backfire significantly, leaving you worse off in the end.

"You can't be in a constant state of deprivation."

"I don't believe in deprivation in any sense of the word," Dunlap says. "Ninety-nine percent of diets fail because the more you tell me I can't have fried chicken, the more I want fried chicken. And that's not a willpower thing — that's a literal psychology thing. Our brains do not work on deprivation.

"And it's not sustainable for the long term," Dunlap continues. "You can't be in a constant state of deprivation, so if we're truly trying to build our financial foundation for our entire lives, for six months, a year, 10 years or 30 years, it's just not going to work. There should be a balance."

It's not that you have to stop spending money, Dunlap stresses, but you do have to stop spending on things you don't care about — because when you're spending money in one place, you might not be able to spend it in another. That means you have to figure out what it is you value most. Which purchases bring you the most joy?

Keeping a "money diary" for 30 days can help you answer that question. Simply jot down discretionary purchases, noting how much they cost and how they made you feel. You'll likely see some patterns emerge, and they'll help you build out a personalized, three-category, value-based spending system.

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"You have to be specific in these categories."

It's pretty straightforward: Drill down on three discretionary spending categories that consistently make you happy. For example, Dunlap's are travel, food out and plants (she has about 60 of them, she laughs). But that doesn't mean that Dunlap's entire discretionary budget must go towards one of those three categories — just the majority of it. "I'll buy the occasional coffee," Dunlap says. "I'll purchase makeup or buy a new outfit, but those things don't bring me the most joy.

"You have to be specific in these categories," Dunlap explains. "Entertainment as a category does not work, because then suddenly it's Cirque du Soleil tickets, a trip to Vegas, coffee and a concert — everything is suddenly under entertainment." It's the same if you claim "shopping" as one of your categories. Before you know it, you're buying a new car and a new wardrobe.

The secret lies in specific spends that never disappoint. For instance, one of Dunlap's clients wanted to be able to walk into Whole Foods and buy any type of fancy cheese — no matter how expensive — without feeling guilty. Another client loves vintage clothes and the process of refurbishing and tailoring them.

It's about honing in on the little luxuries and "milking them for all they're worth," Dunlap says, noting that, post-Covid, those small things can be even more meaningful. "I went to the farmer's market yesterday," she says, "and I bought a bouquet of flowers for $10. And I got to sit there and listen to my podcast while I trimmed the leaves and arranged them. And that was a $10 purchase that's going to bring me joy for the next week when I see the flowers, but I also got to have this lovely therapeutic experience."

Once you pick your categories, you really have to stick to them. "We can't do the thing we all tend to do, where it's like, Oh, I said no sweets, but I'll eat a muffin for breakfast. Muffins are cupcakes," Dunlap laughs, "so you have to make sure you're not secretly trying to justify things to yourself."

Related: Yes, You Can Be Happy While Pushing Yourself to Success

"It's about cutting back, not completely eliminating."

But what happens when that recession's finally official, and you decide it is in your best interest to spend less? That's when a financial plan B — or even C — can come in handy, Dunlap says. Still, that doesn't mean you have to deprive yourself completely. Dunlap explains a couple of different ways you can reduce overall spending effectively.

"You can cut necessary expenses," she says. "So maybe you're getting scrappy about grocery shopping, staying on a particular budget, just getting the things that you put on a grocery list. Or saying, Ok, I can afford to live in an apartment that's still safe, but it's in a different area that costs less money."

Of course, you can also rein in discretionary spending — though not to excess. "Tell yourself, I'm not going to completely deprive myself because I know that doesn't work, but as opposed to eating out four times a week, now I'm going to eat out twice a week," Dunlap explains. "Or say, I love my Starbucks, but instead of getting a coffee every day, I'll get one every other day. It's about cutting back, not completely eliminating."

Sometimes personal circumstances will require even leaner spending habits, but Dunlap emphasizes that a scarcity-mode mentality isn't sustainable in the long term, so it shouldn't be held up as the ideal or default.

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"It's a good thing to audit once a year."

Additionally, Dunlap acknowledges that your approach to money will naturally evolve. "With any sort of goal, but specifically a financial goal, it's going to ebb and shift as you grow," Dunlap says. "So it's a good thing to audit once a year. What are my financial goals? Do I actually want to buy a house? Do I want to have children? Do I want to start a business? Maybe, last year, you really wanted to buy a house, and now you're like, Actually, that doesn't fit my lifestyle anymore."

That yearly audit is also a great time to reevaluate your value-based categories to make sure you're still using money as a tool for maximum happiness. You might find that your daily Starbucks habit doesn't bring you as much joy as it once did and that your money could be better spent elsewhere. Or you might discover that coffee out is still in your top three categories — and that's perfectly fine too, because value-based spending is all about what you find worthy.