More than half of Americans are pausing upcoming purchases due to economic uncertainty.
In the Planning & Progress 2023 Study from Northwestern Mutual, 60% of Americans surveyed said they are postponing plans and purchases. Thirty-six percent are postponing daily purchases including dining out, buying new clothes and buying tickets for events. Twenty-nine percent said they’re waiting to invest in large purchases or projects. Even major life decisions are on hiatus with 29% of Gen Z postponing changing their jobs.
Two-thirds of U.S. adults (67%) surveyed said they expect to enter a recession this year and 78% expect it to have a high or moderate impact on their near-term finances. To help you avoid unwise spending, GOBankingRates spoke to four financial planning experts to find out which purchases are the worst to make in an economic downturn.
A kitchen remodel is the kind of purchase that is considered “nice to have.” Purchases and life moves during an economic downturn should shift from wants to needs only, said Jay Zigmont, PhD, CFP and founder of Childfree Wealth.
If the kitchen remodel is a want, the “need” would be repairing the roof of your house to prevent any damage.
If the purchase of a car isn’t immediately necessary, Joyce Rojas, MBA and CEO of Money Mindset Wealth Management, recommends holding off on buying a new car. One of the biggest incentives to waiting, Rojas said, is the price of automobiles typically comes down during a recession.
Consider adding more money to your emergency fund in the interim. Rojas suggested having at least four months’ worth of expenses and even more if you’re able to set this money aside. Those who don’t have an emergency fund should not plan any purchases.
Buying a home, according to the Northwestern Mutual study, is being postponed among nearly every generation including Gen Z (23%), millennials (18%) and Gen X (12%).
Kendall Meade, CFP at SoFi, has seen people delaying the purchase of a home at this time. During times of uncertainty, especially for those concerned about potential job loss, Meade said it may make sense to delay buying a home until you have a solid financial foundation.
Starting a Business
Both millennials (15%) and Gen Z (22%) are pausing any plans to start their own business.
Why is this life decision delayed during an economic downturn? CFP William Bevins said it’s much easier for people who dream of starting their own business to take the plunge when the economy is thriving and the risk of entrepreneurship is reduced.
“Today’s 7% or 8% mortgage rates have been a surprise to many, especially those who made their dream home purchase just two years ago when rates were at record lows,” Bevins said. “With interest rates at these levels, the vacation home makes sense to push off for a later date.”
Vacations and Trips
If you’re planning a nonessential vacation or expensive trip and don’t have your finances in good shape, now may be the time to wait until you have enough money saved to pay for the vacation in full.
What if you have paid off your debts, built an emergency fund, saved enough money to pay for the vacation and are currently saving for retirement? You have a solid financial foundation in place and are good to go and enjoy your vacation. “It is still okay to proceed as there will always be some uncertainty,” Meade said.
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