34% of Americans Are Putting Off Big Purchases Due to Recession Fears. Should You?
- If a recession hits in the near term, it could cause widespread job loss.
- It's a good idea to spend conservatively in case that situation arises and impacts you.
It's an option worth considering.
Will a recession hit later on in 2022 or in early 2023? That's a big question on a lot of people's minds.
The reality is that we can't say with certainty that things are about to take a massive turn for the worse. But it's a possibility we also can't discount.
The Federal Reserve has been raising interest rates in an effort to slow the pace of inflation. Its goal is to encourage consumers to spend less by driving the cost of borrowing upward. If consumer spending declines, it should narrow the gap between supply and demand that led to inflation in the first place.
But the Fed may not achieve the soft landing it's hoping for. Instead, consumer spending has the potential to decline a lot as borrowing costs soar. If that happens, it could easily spur a recession and lead to a prolonged period of widespread layoffs.
If you're thinking of changing your spending plans due to recession concerns, you're not alone. A good 34% of Americans are putting off big purchases like buying a home or car due to recession fears, according to the recently released BMO Real Financial Progress Index. But before you change your plans, it pays to assess your financial situation thoroughly.
Some plans are worth moving forward on
You may be eager to conserve cash in the coming months and avoid making any large purchases. But in some cases, spending money could lead to a more stable situation in the event of an economic downturn.
Let's say your car is really on the way out, but you're able to get around the issue by mostly working from home. If a recession hits and you lose your job, you may have no choice but to accept a role that requires you to commute daily. So in that scenario, delaying a car purchase actually wouldn't make sense.
Similarly, let's say you're on a month-to-month lease and haven't locked in a longer-term arrangement because you've been itching to buy a home. If you have plenty of funds for a down payment with enough money left over in savings to cover yourself for emergencies, then it doesn't necessarily pay to put off a home purchase if you can afford to make one.
Buying a home might lead to a more stable housing situation. And it might spare you the fate of getting stuck paying higher rent when your landlord pulls the plug on your month-to-month setup.
In some cases, it pays to wait
If you can comfortably afford a large purchase right now that will lend to more stability in your life, then it could pay to move forward even with a recession looming. But if you're on shaky financial ground, then it certainly pays to postpone a big purchase, especially if it isn't absolutely necessary.
Going back to our earlier example, let's say you have a perfectly functional car but have been itching for a new one. It doesn't pay to spend that money if you don't have a lot of cash reserves and you don't have that pressing need.
All told, the economy could take a serious turn for the worse, and soon. And so if you're able to put off a big purchase you're not in the best position to swing, that's generally the right way to go.
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