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- In times of economic downturn, controlling your spending is crucial.
- Try to avoid taking on new debt that you don’t need, such as a house or a car.
- Take a critical look at small expenses, too – there’s no reason to keep paying for things you don’t use.
With a recession looming and the Federal Reserve poised to raise interest rates again, it’s important to watch your spending. A recession can significantly disrupt your personal finances. Preparing your finances, establishing a budget and keeping your expenses to a minimum can help you weather an economic downturn.
According to BMO Financial Group’s latest Real Financial Progress Index, 84% of consumers said they were concerned about a recession before the end of the year and 76% said they were making lifestyle changes by prediction of the slowdown.
The #1 financial adjustment is delaying big purchases like a house or car, followed by paying off debt and planning to cut vacation expenses.
Given this financial uncertainty, there are several purchases you may want to avoid depending on your circumstances and lifestyle needs. From new homes and cars to Hulu and other subscription services, here are purchases to think twice about during a recession.
1. A new home
Homes tend to become cheaper during a recession due to lower demand. People tend to be wary of making that big purchase during uncertain economic times, so prices drop to entice buyers. While you generally need a job and financial security to buy a home, that doesn’t make a purchase of this magnitude recession proof.
This also applies to refinancing a mortgage. It may be tempting to use cash refinancing to pay off debt, but if you’re in dire financial straits or facing job insecurity, you may not want to increase the cost of accommodation at the moment.
2. A new car
A shiny new car at recession prices might sound like a good idea, but it’s just a shiny new monthly bill. You may not want to commit to paying for a car or running out of money you may need later during a time of financial uncertainty.
A new car can be a bigger expense, from paying for the car to taxes and insurance. If your current car still works, consider keeping it a little longer and ditch the new car payment.
3. Surplus groceries
Many consumers buy on impulse at the grocery store, but during a recession, when you need to control your spending, it’s important to shop with a plan. Plan your meals, research recipes and shop accordingly. Storing mindlessly turns into overbuying, and groceries and your money are just wasted.
4. Any item requiring funding
Homes and cars are the first things that come to mind, but there are plenty of other big purchases – home renovations, furniture, computers and TVs – that many couldn’t afford without financing. Now is not the time to do this unless absolutely necessary.
There will be bids and sales, but now may not be the time to commit to ongoing payments or reduce your cash reserves. As stores want to attract more customers, there will be low-cost financing opportunities and lower prices, but cash in the bank during a recession is better than any transaction.
5. Additional TV broadcast
Keeping your attention on a TV show can be relaxing during a difficult time, but getting your spending under control is crucial right now.
When money is tight or you want to make sure you have cash on hand in case you need it, consider whether you want to have cable TV and streaming subscriptions to Hulu, Netflix , AppleTV+ and Amazon. It can be a money leak that you may not even be aware of. Decide which streaming services you want to watch and if you can, have one, maybe two at most.
6. Memberships, meal delivery and subscriptions
Look at where your money is going on a monthly basis and figure out what you’re paying for, but it may not be necessary.
One of the biggest wastes of money is unnecessary memberships and subscriptions. Many of them are automatically deducted from your account, so they discreetly take your money and you don’t see it. Take a look at your bank statements and see which subscriptions you pay for regularly and delete the non-essential ones.
That subscription box or meal delivery service you keep forgetting to cancel or that magazine that ends up in the living room unread? Ask yourself if it works for you financially, and if not, cancel it and remove it from your budget.
During a recession, it is important to be careful with spending and to be wary of unnecessary and expensive purchases. In the midst of a major economic downturn, the best actions to take are creating a budget, cutting out unnecessary expenses, and growing a cash reserve.
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