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During a recession, look closely at how you’re spending money.
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During an economic downturn, it’s crucial to control your spending.
Try to avoid taking on new debt you don’t need, like a house or car.
Look critically at smaller expenses, too — there’s no reason to keep paying for things you don’t use.
With a looming recession and the Federal Reserve set to raise interest rates again, it’s important to pay attention to your spending. A recession can be a major disruption to your personal finances. Preparing your finances, setting up a budget, and keeping spending to a minimum can help you weather an economic downturn.
According to financial group BMO’s latest Real Financial Progress Index, 84% of consumers said they are concerned about a recession happening before the end of the year and 76% said they were making lifestyle changes in preparation for the downturn.
The No. 1 financial adjustment is delaying major purchases such as a house or a car, followed by paying down debt and planning to cut back on holiday spending.
Given this financial uncertainty, there are several purchases that you may want to avoid depending on your circumstances and lifestyle needs. From new houses and cars to Hulu and other subscription services, here are purchases to think twice about during a recession.
1. A new house
Houses tend to get cheaper during a recession due to falling demand. People tend to be wary of making this big purchase during uncertain economic times, so prices fall to entice buyers. Although you typically need a job and financial security to buy a home, it does not make a purchase of this magnitude recession-proof.
This also applies to refinancing a mortgage. It may be tempting to use cash-out refinancing to pay down debts, but if you are in a financial bind or are facing job insecurity, you may not want to increase housing costs at this time.
2. A new car
A shiny, new car at recession prices might seem like a good idea, but it’s just a shiny, new monthly bill. You might not want to commit to a car payment or deplete cash you may need down the road during a time of financial uncertainty.
A new car can be a higher expense all-around, from the car payment to taxes and insurance. If your current car is still working, consider keeping it a while longer and ditch the new car payment.
3. Excess groceries
A lot of consumers impulse buy at the grocery store, but during a recession when you need to control your spending, it’s important to grocery shop with a plan. Plan your meals, look for recipes, and shop accordingly. Stocking up without forethought turns into buying too much, and the groceries and your money just go to waste.
4. Any item that requires financing
Houses and cars are the first things that come to mind, but there are plenty of other large purchases — home renovations, furniture, computers and TVs — that many would not be able to afford without financing. Now is not the time to do it unless it is absolutely necessary.
There will be deals and sales, but now may not be the time to commit to ongoing payments or reduce your cash reserves. As stores want to get more customers in, there will be opportunities for low-cost financing and lower prices, but cash in the bank during a recession is better than any deal.
5. Additional TV streaming
Turning your attention to a TV show can be relaxing during a hard time, but getting a grip on your spending 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. This can be a money drain 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 the most.
6. Memberships, meal delivery, and subscriptions
Take a look at where your money is going on a monthly basis and figure out what you are paying for, but might not need.
One of the biggest wastes of money is unnecessary memberships and subscriptions. A lot of these are automatically deducted from your account, so they quietly take your money and you don’t see it. Take a look at your bank statements and see what memberships you are paying for on a regular basis and remove the ones that are not essential.
That subscription box or meal delivery service you keep forgetting to cancel or that magazine that just ends up in the living room unread? Think about whether this is working for you financially, and if not, cancel it and take it out of your budget.
During a recession, it’s important to pay attention to spending and be wary of making unnecessary and expensive purchases. In the midst of a significant economic downturn, the best steps to take are creating a budget, getting rid of needless expenses, and growing a cash reserve.