Yahoo Finance Living Frugally: Adopting Lessons From the Great Recession
During the Great Recession in the late 2000s, unemployment jumped to 10% and home prices plunged an average of 30%, leading many people to reduce their frivolous spending and hold tighter to their hard-earned cash. Today, the economy faces a different set of problems — high interest rates that make borrowing more expensive and stubborn inflation that doesn’t seem to be going away.
So what’s a consumer to do when prices seem to jump every time you enter the store? Here are a few lessons learned from hard times during the Great Recession that can help you keep more money in your bank account.
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1. Buy Groceries From Discount Retailers
Many consumers stopped buying groceries from expensive supermarkets during the Great Recession. Instead, they signed up for a membership at a warehouse club such as Costco or Sam’s Club and purchased items in bulk.
If there’s a warehouse club in your area, stop by to see what it offers. Some clubs may let you look around to see what’s available before signing up for a paid membership. However, bulk shopping isn’t for everyone — especially if you lack space or have a small household. If that’s your situation, consider opting for cheaper grocery outlets like Walmart, Aldi, Lidl or Trader Joe’s.
2. Reduce Your High-Interest Debt
Just before the start of the Great Recession, the Federal Reserve hiked its interest rates up to levels that mirror today’s. However, rates took a nosedive in 2008, dropping to nearly 0% by the end of the year. Savvy borrowers used that opportunity to pay down their credit cards and other lines of credit.
Today’s high interest rates make it harder to reduce your debt, but you can chip away at your balance by paying more than your monthly minimum. Try doubling or even tripling your monthly credit card payments, especially on accounts with steep interest rates. Over time, you’ll see your balances decrease, reducing the overall interest you pay.
3. Pay Yourself First
When times are good and borrowing is easy, consumers tend to purchase more — opting for new electronics and luxury goods rather than socking their cash away for a rainy day. However, that changed during the Great Recession, as the personal savings rate jumped to 5% — a rate that had been unseen in nearly 20 years. Instead of spending lavishly, consumers budgeted for the essentials and built their savings and retirement accounts.
You can take the same approach by carefully budgeting your income and diverting a set amount into your savings or retirement funds with each paycheck. You might try to follow the 50/30/20 rule, through which 20% of your income goes to savings. If that’s not possible, start a little smaller and work upward. Over time, you’ll see your efforts pay off in the form of more money for your personal financial goals.
4. Rethink Your Vacations
Vacations are a time to rejuvenate and recharge — but they may come with a lofty price tag, depending on what you do. During the Great Recession, nearly 60% of consumers cut down on their vacation plans or eliminated them altogether. Canceled vacations meant more money for savings and the essentials.
Instead of planning your next summer cruise or Disney vacation, find a cheaper alternative. Look around your area for things that don’t require an expensive hotel stay or airfare. For instance, you might plan a family hike in a nearby national park or spend your days off exploring new hobbies. You can put the money you save toward a future goal, like retirement or your kid’s college fund.
5. Buy From Cheaper Brands
There are inexpensive alternatives for nearly any consumer product or service, including groceries, cars, clothing and electronics. Few know that better than those who experienced the Great Recession. During that period, 71% of consumers switched to low-cost brands rather than their more expensive competitors.
Think about the companies you buy from the most and whether there are more economical options. Are you a sucker for expensive running shoes? Look for cheaper sneakers online or at your local discount retailer. Are you in the market for a new car? Consider buying used or switching to a less expensive automaker.
6. Cut Back on Unhealthy Habits
During the Great Recession, nearly one-third of consumers reduced their spending on alcohol and cigarettes. Both substances have known health consequences, and they’re not essential to everyday living — making their use less attractive when money is tight.
If you smoke or drink, consider cutting back. Not only will your wallet thank you, but you may see improvements in your health that will make the change all the more worthwhile.
Final Take
The Great Recession was one of the most challenging economic events in recent history, but it offered many lessons that consumers can take advantage of today. If you’re looking to save money during the challenging period of inflation right now, try implementing a few of these strategies to boost your savings and reduce your debt.
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