At what point do you start to cut back?

When I want to go on a vacation or make a purchase, I cut back.  If it is a purchase then it probably isn't a large one (knowing me), so I probably cut back for a month or two.  A vacation tends to go in stages - before I buy the ticket, before I pay for the hotel (if paying in advance), and then right before the vacation for spending money.

But what about general cutting back?  When Lehman Brothers blew up I quickly cut back.  I reduced my retirement contributions almost immediately because there was this huge unease surrounding me from talking with various people in different departments at my office, talking with friends, and reading about the incident.  I believe a lot people knew without knowing that this was huge.  So instead of contributing to my retirement, I kept the funds in cash.  It wasn't the best reaction but soon the layoffs started in various industries and then soon they started at my company.  I was glad to have the money then.

The last one is an extreme example and hopefully one that doesn't happen again.  But still, when does one cut back?

Last week the Wall Street Journal had an article with a title that basically said Goldman Sachs (a large investment bank) was tightening its belt.  This was beneath a blurb about another company (can't remember which one!) that said that company was laying off people.  I was on my way into the office and I immediately thought, I need to cut back.

This week, there was an article about Caterpillar and it said it was having some issues - some softness in its industry.  And I thought to myself, I need to cut back.

Now I'm not an extravagant spender by any means.  But I can still cut back.  A major global construction/equipment company is having issues.  A well known global investment bank is starting to look a bit more closely at its costs.  These should be red flag issues.  While I think we should all be conservative with our spending (making sure to always put something aside), when we hear news like this, shouldn't we be asking ourselves, "is a shoe about to drop?"

Now I firmly believe that a recession is coming.  It's been a long time since the Great Recession started so it just *feels* like *something* should be happening in the next 2 years.  (I don't have anything to base this on except that several years have passed, the recovery has been marginal, and recessions do tend to happen every so many years...)

I don't think we should panic when we see news of companies looking a bit closer at where they are spending money.  But I do think that it should make us thoughtful of our own ship that we need to manage and run well.  And that's what I will be doing in the near-term - checking in on what I need and what I want and how to reduce spending on the latter.  I think it is good to do that from time to time.

I need a bit of lightheartedness so I'm off to watch a bit of 'flix.  Back this weekend with housekeeping updates and hopefully some articles :-)

TGIF!
Pru