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.
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Given this financial uncertainty, there are several purchases that you may want to avoid depending on your circ*mstances 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.
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.
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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.
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.
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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.
Jennifer is a Senior Personal Finance Reporter and Spokesperson for the Personal Finance vertical at Business Insider.She started her career covering personal finance at Black Enterprise Magazine, went on to CNBC where she covered personal finance, women and money and tech and then Forbes, where she reported on personal finance, business, tech and money matters related to the economy, investing, credit and entrepreneurship.Jennifer is also the author of Thrive!...Affordably: Your Month to Month Guide to living your Best Life without breaking the bank. The book offers advice, tips and financial management lessons geared towards helping the reader highlight strengths, identify missteps and take control of their finances.In addition, she has extensive experience as an on-air financial commentator and has been a featured expert discussing credit and savings, investing and retirement, mortgages and all things money and personal finance. She has an ability to discuss and simplify complex financial issues and make them easier to understand.Follow her on Twitter @jstreaks.
Most stocks and high-yield bonds tend to lose value in a recession, while lower-risk assets—such as gold and U.S. Treasuries—tend to appreciate. Within the stock market, shares of large companies with solid cash flows and dividends tend to outperform in downturns.
Seek Out Core Sector Stocks. During a recession, you might be inclined to give up on stocks, but experts say it's best not to flee equities completely. ...
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.
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Toothpaste, deodorant, shampoo, toilet paper, and other grooming and personal care items are always in demand. Offering these types of items can position your business as a vital resource for consumers during tough times. People want to look good, even when times are tough.
Investors seeking stability in a recession often turn to investment-grade bonds. These are debt securities issued by financially strong corporations or government entities. They offer regular interest payments and a smaller risk of default, relative to bonds with lower ratings.
For investors, “cash is king during a recession” sums up the advantages of keeping liquid assets on hand when the economy turns south. From weathering rough markets to going all-in on discounted investments, investors can leverage cash to improve their financial positions.
Several asset classes perform well in inflationary environments. Tangible assets, like real estate and commodities, have historically been seen as inflation hedges. Some specialized securities can maintain a portfolio's buying power, including certain sector stocks, inflation-indexed bonds, and securitized debt.
All Americans should have at least a three-day supply of food and water stored in their homes, with at least one gallon of water per person per day. If you have the space, experts recommend a week's supply of food and water. Choose foods that don't require refrigeration and are not high in salt.
Recessions can impact your savings in many different ways. Lower interest rates, stock market volatility, and potential job loss can drain your savings. Diversifying your investments, building an emergency fund, and opening a high-yield savings account can help protect your savings.
During economic downturns you want to have as much cash on hand as possible. If it is not absolutely necessary, it may be best to delay any big-ticket purchases. Big purchases, such as a car or house, typically require you to either put down a large lump sum of cash or have a hefty ongoing payment.
Deposit accounts offered by banks that are members of the FDIC receive FDIC insurance coverage. The standard FDIC deposit insurance coverage limit is $250,000 per depositor, per FDIC bank, per ownership category.
Build up your emergency fund, pay off your high interest debt, do what you can to live within your means, diversify your investments, invest for the long term, be honest with yourself about your risk tolerance, and keep an eye on your credit score.
The current financial situation has important differences from the last recession, and this could be an ideal time to buy a cheap car. Buying a vehicle ahead of a potential recession may not seem like such a great idea, but if you have the resources, now is actually a great time to buy.
Lower prices — A recession often hits after a long period of sky-high consumer prices. At the onset of a recession, these prices suddenly drop, balancing out previous long inflationary costs. As a result, people on fixed incomes can benefit from new, lower prices, including real estate sales.
CDs are a relatively risk-free way to grow your funds, but they also have some downsides. Mapping out plans to build your savings can be challenging, especially when interest rates fluctuate. A certificate of deposit (CD) is a good alternative if you're risk-averse when it comes to investing.
Introduction: My name is Allyn Kozey, I am a outstanding, colorful, adventurous, encouraging, zealous, tender, helpful person who loves writing and wants to share my knowledge and understanding with you.
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