Spending habits: Americans at all income levels tighten their belts
As a recession looms, signs of a new frugality emerge. Say goodbye to long trips and lattes.
Until recently Shannon Palmer, like many Americans, spent money freely. She assembled a nice wardrobe, took four vacations a year, and ate out often. But now, as she listens to economists discuss the likelihood of a recession, she recognizes the need to get her own finances in order.Skip to next paragraph
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"I'm young and I feel mostly secure in my job, but I have a good deal of debt on my back," says Ms. Palmer, a publicist in Andover, Mass. As a step toward fiscal responsibility, she has begun a "very aggressive" plan to pay off student loans, a car loan, and credit-card bills. She has also started to save.
"This is a time for action when it comes to people taking responsibility for their personal finances," she says. "This is just the motivation I needed. It's forced me to look at things differently."
Looking at things differently is a theme running through conversations of Americans at all income levels these days as they review their spending habits. Nearly 2 out of 3 consumers intend to reduce indulgent spending in 2008, according to a new survey by HSBC Bank USA. Four out of 5 want to increase the amount they save.
Among those who do not dwell in that economic stratosphere, the new prudence is often a necessity, stemming from uncertainty about jobs, high fuel costs, heating bills, and the price of healthcare. For others, like Palmer, it is voluntary and represents, at least in part, a shifting of values. They regard an economic downturn as an opportunity to reassess their priorities.
"It's a good wake-up call for a lot of people, that the good times don't last forever," says Kim Danger, founder of Mommysavers.com. "People realize they don't need an expensive lifestyle to focus on the things that really matter."
Palmer's wake-up call began when she tracked her expenses and made a sobering discovery. "I spent a lot of money on very pointless, unneeded things," she says. That included $3 every two days in a vending machine at work, regular visits to Starbucks, and social lunches.
To cut back, she has drastically reduced what she spends on clothes. She is learning to do her own dry cleaning. She has also canceled an annual trip to Florida and another to the West Coast.
"I didn't want to sacrifice my comfort, but I wanted to cut back on the luxuries," Palmer says. "It feels really good to finally have sanity when it comes to my finances. I don't have to constantly be worried about going overboard."