Frugal spenders know there are plenty of items they can avoid buying to keep their bank accounts as fat as possible, no matter the state of the economy. But with the U.S. sinking into a deep recession triggered by the coronavirus pandemic, experts say there are several purchases you should be especially wary of when times are tough. From new cars to Netflix, here's what to think twice about buying during a recession.
Related: 50 Ways to Prepare for a Recession
The pandemic may have more people wondering whether their family could get by if they died, but think twice before buying life insurance now, experts say. "Due to Covid-19, what were once very inexpensive term life policies will be price adjusted to account for new risks," warns Kasey Ring, owner of Upward Personal Finance. And even if the policy seems reasonable, it's an added monthly expense when most people should streamline as much as possible, says Michael Bonebright, consumer analyst with DealNews. "Adding an expensive premium to your bills is not wise when you need money to live today," he warns. "Whole life insurance is an especially poor decision. Because it's an investment product, whole life insurance has the steepest premiums, typically seven to 10 times the price of term life."
Gas is cheap, and car dealers are desperate. Great time to buy a car, right? Probably not, experts warn. Even though lower demand means sales, you're still rolling off the lot with a brand new monthly bill. "While it may seem like an opportune time to buy a vehicle at a bargain price, you don't want to commit to a car payment — or tie up your cash — during a period of economic uncertainty. Instead, keep driving your clunker for a while," recommends Nathan Hamilton, cofounder of The Ascent. Timothy Wiedman, retired associate professor of management and human resources at Doane University, agrees. "Replacing a rusty used car that's still mechanically sound, but cosmetically looks pretty bad, makes little sense if that rust bucket still gets you to work each day."
Like cars, houses also get cheaper during a recession because of falling demand — more people are leery of making a big move, so prices fall to entice the few buyers who remain. Still, don't start taking too many online house tours, cautions Jack Choros, finance writer with CPI Inflation Calculator. "You need a job in order to get a mortgage, and you may have a good one that you feel is recession-proof, but you never know," he warns. "During these times, banks and governments can also institute many different kinds of loan programs and stimulus packages that may send rates up and down unpredictably." Because of that, he advises particular caution with adjustable rate mortgages. Bonebright also warns against refinancing your mortgage if you're on uncertain economic footing. "Remember: You'll have to pay closing costs, which can be substantial. And if you plan to use cash-out refinancing to pay debts, be sure you're not going rack up more debts after you've refinanced."
Houses and cars are the biggies, but there are plenty of other big-ticket items — furniture, a new deck, a new computer, a backyard pool — that many of us can't purchase without financing, but now's not the time unless it's an absolute necessity. "It's a good idea to steer clear of any big purchase that requires you to commit to ongoing payments or deplete your cash reserves, even if it seems as though you're getting a great deal." Hamilton says. "This could be anything from a cheap used car to bargain furniture offered with cheap financing. These deals can seem tempting when stores are desperate to get customers in, but having cash in the bank in case the recession impacts your income is far more valuable than any bargain."
Out of necessity, you may not be able to avoid making a big purchase like a car or a new refrigerator, even when money is tight. But then you're faced with another decision: For just a few dollars more, you can buy an extended warranty that will protect you from unexpected repair costs. The peace of mind is tempting, but in the vast majority of cases, the warranty is a waste of money, experts say. For instance, Consumer Reports found that more than half of car owners who'd purchased an extended warranty never used it at all, meaning they'd flushed an average of over $1,200 down the drain. Warranties on electronics and appliances are similarly wasteful, they say, noting that many are packed with exclusions and fine print that make them hard to use even in the unlikely event that you need them.
Related: 11 Types of People Who Should Buy the Extended Warranty
Food is essential, but is everything in your overfilled grocery cart? Probably not. "A lot of consumers buy food on impulse and some of the excess groceries end up going to waste," says Andrea Woroch, savings expert and contributor to Today, Good Morning America, CNN and others. "It's so crucial, especially during a recession when you need to tighten your budget, to meal plan effectively. Ideally, you look for recipes using similar ingredients to reduce what you buy even further. Reference your ingredient list with what you have at home already, both in your pantry and fridge, so you don't double up. Then, stick to your shopping list to deter from unnecessary grocery items, including that package of Oreos."
Related: 50 Ways to Save at the Grocery Store
If you have a name-brand habit, a recession is a great time to break it. Food is one obvious spot to make the switch. "There are plenty of great tasting generic and store-brand options available, and the markup on brand names can be astronomical," Woroch says. Another place to consider scaling back your love for pricey labels? Clothing, especially when it comes to the kids. "You can find a great selection of very affordable kid's clothing at stores like Walmart or on sale at Old Navy," Woroch says. "Kids grow quickly, and they will be out of those name-brand clothes and sneakers in a matter of weeks for toddlers and months for school-aged kids. Even better, shop used ... and sell items they've already grown out of to supplement whatever items you have to buy to replace them."
We're big fans of buying in bulk to save money, but experts caution that this tactic often doesn't make as much sense during a recession. "On the surface, this appears to save you money, since a dozen cans of beans or 40 pounds of rice may be less expensive than buying individual units," says Dennis Shirshikov, senior financial analyst with Fit Small Business. "However, most families struggle during recessions due to cash-flow issues rather than cash shortages. Tying up significant capital in bulk purchases is less expensive on average, but it means that if something comes up, you may not have the money to cover the expense." In other words, during a recession, it's better to have the cash, not the giant drum of pretzels.
When times are tough, people are tempted to invest in precious metals, believing them to be a hedge against economic uncertainty. But if you're struggling to pay the rent or other bills, new investments — even well-intentioned ones — are ill-advised at best, says Howard Dvorkin, CPA and chairman of Debt.com. "If I had a dime for every time one of my clients asked me, 'Should I buy silver or gold during a recession?' I still wouldn't buy or invest in silver or gold. Precious metals do skyrocket in value during recessions, but silver and gold don't help you when you have bills to pay," he says.
We get it: You're at home and you're bored. Turning on a favorite show means a little escapism during a hard time. Still, don't go overboard, especially when money is tight, Ring says. "There is no need to have cable or satellite TV along with subscriptions to Amazon, Netflix, Hulu, Apple TV, YouTube TV, and HBO. Figure out which streaming service supplies what you want to watch, and have one, maybe two tops. And, because we are all at home watching TV, pricing is not likely to decrease in this category."
While we're on the subject of streaming, now's the time to figure out what you're paying for month in and month out, but might not need. "One of the easiest budget gobblers to eliminate is unnecessary memberships," Ring says. "Take a look at the last six months of bank and credit-card statements and pull out the memberships that quietly take your money on a regular basis, and remove the ones that are nice to have but non-essential." In other words, the gym membership that you're probably not using? The subscription box that you keep forgetting to cancel? The magazine you don't read? Cut, cut, cut.
Related: 21 Ways to Reduce Your Monthly Bills When Money Is Tight
Don't get us wrong: Sales are great, and a recession will bring a ton of them across the retail sector as businesses try desperately to survive. But buying that $50 sweater for $20 is only a real deal if you actually need that sweater — otherwise, you waste $20 instead of saving $30. "It is easy to go down the online-shopping rabbit hole at a time when other distractions are few," cautions Patrick Gourley, assistant professor of economics and business analytics at the University of New Haven. "Try to stick to purchases that you would have bought anyway, and enjoy sales responsibly. For example, if you have never bought a pair of noise-canceling headphones, this is probably not the best time to do so. On the other hand, if you thought in January that your winter coat needed replacing at the end of the winter, take advantage of some of the crazy deals. Just don't go overboard and try to buy yourself out of the funk many of us are feeling."
Staying connected is more important than ever, but let's face it — your old phone can probably handle calls and video chats just as well as the $1,000 model that just came out. "At first, (upgrading) may seem like a great idea because we all rely on our phones to get work done, research, and communicate," says Drew Cheneler of Simple Money Lyfe. "But this is not a smart money move during a recession. You are better off keeping your old phone and investing the money or putting it into an emergency fund."
Dreams of instant riches may provide fleeting relief from the harsh reality of a recession, and 10 years ago, lottery sales rose during the recession. But the habit isn't harmless or cheap. The average buyer sinks $75 a month into lottery tickets, according to Bankrate, but the odds of hitting that Powerball jackpot are a staggeringly low 1 in 292 million. In other words, people are throwing away $900 a year that could pad their emergency fund for a not-so-cheap thrill.
Related: 10 Reasons Not to Play the Lottery
Though less of a "buy" and more of a "give," your charitable contributions also deserve scrutiny during a recession. Though charities may need more help than ever, now is the time to prioritize your generosity. "It may not seem very nice to lower your monthly charitable donations, but the reality is that if you don't put your finances first, you will end up unable to give anything at all," says Morgan Taylor, chief marketing officer at LetMeBank. "Keep yourself economically strong first and foremost, so that you are in a position to help where you can." In other words, this is the financial equivalent of putting on your own oxygen mask before assisting others.
