The world is witnessing the highest rate of inflation in the last 40 years. The stock market is facing downturn. The fears of a recession are growing and there is an implosion of crypto. For the American families, the past year was difficult. Their 401(k) accounts were destroyed, their finances were stressed, and they had less money to spend. Many people think the economy will be in worse position in 2023 than it is now, despite a recent burst of good news about moderated gas prices and a falling rate of inflation. There are several easy steps you can take right away to protect your finances from any additional economic turmoil, no matter what the upcoming 12 months bring.
For example, one of the pieces of advice is to put money in banking accounts with higher interest rates and lower costs. Then, resolve fees for any memberships you decide to keep and cancel those you don’t utilize. Additionally, you can examine your 401(k) allocations and contributions. Taking a quick action might be also beneficial. On New Year’s Eve, several financial advantages that could be significant have expired. After popping the cork on the champagne and the jolly holidays, now you should think about the following decisions that can help you protect your finances.
1. Boost your income from savings to protect your finances
Right now, keeping your money in a standard savings account is just modestly preferable than hiding it beneath a mattress. According to the financial website DepositAccounts.com, the average yearly interest rate on savings accounts at all banks is 0.268%, thus $1,000 in savings will only be enough to pay for one slice of pizza.
The largest institutions have some of the lowest rates. According to one estimate, customers of the five major U.S. banks could have earned $42 billion more on their balances in the third quarter by simply transferring their funds to accounts at other institutions that offered greater yields. For instance, some online-only accounts provide rates of around 4% and allow linking to another account for simple transfers. According to Ken Tumin, the creator of DepositAccounts, a financial services marketplace owned by LendingTree, the benefits of shifting your money away from the largest banks are today higher than they have ever been in the past ten years. MaxMyInterest is a service that tracks which banks give the greatest interest rates in exchange for a 0.08% annual fee on their assets. Customers can reallocate their cash accordingly on a monthly basis.
Think about investing in bonds
For investors prepared to give up some liquidity, inflation-adjusted I Bonds, which now pay out 6.89% but require holding for at least a year, offer one of the strongest risk-free yields at the moment. According to Mr. Tumin, investors who wanted to max out their purchases of these U.S. government-backed savings bonds ($10,000 each year) should have done so before January. These bonds’ interest rates are determined by a formula linked to the consumer price index, which is one of the reasons they gained popularity this year as inflation rose. Following I Bonds, Mr. Tumin advises taking into account certificates of deposit or Treasury securities, some of which provide interest rates that are higher than those of the best online savings accounts. However, if the Federal Reserve keeps raising rates, temporarily locking up your money could prevent you from taking advantage of stronger yields in the near future.
According to Gary Zimmerman, the CEO of MaxMyInterest, finding a place for your money that offers greater rates won’t make you wealthy but it can provide you with some protection from inflation. In recent years, inflation has nevertheless exceeded even some of the greatest solutions. “The real return on cash may be negative, but if you’re complacent about where you keep your cash, it would be substantially more negative,” he claims.
2. You can change your bank accounts
Although the banking industry has undergone significant change in the last 20 years, it’s likely that your current institution has not. According to a Bankrate poll, Americans maintain their primary bank and savings accounts for approximately 17 years on average. So, what is the next thing you can do to protect your finances? Greg McBride, chief financial analyst at Bankrate.com, advises consumers to routinely check around to ensure they are still receiving the best value, especially if they are paying ATM or monthly maintenance costs. He claimed that finding a bank that provides those services for free is now simple, and the advantages might offset the hassle of transferring financial organizations. Customers who frequently have low checking account balances, for instance, may profit from selecting accounts with long overdraft grace periods.
Changing to a brokerage that can provide greater insurance coverage by collaborating with various FDIC-regulated banks may be beneficial for a customer who has more than the $250,000 maximum amount per depositor that has the guarantee of the Federal Deposit Insurance Corp. Through relationships with 26 banks, one brokerage behemoth, Fidelity Investments, enables customers to hold up to $3 million in insured deposits in their cash management accounts. Many brand-new providers of financial technology combine checking accounts with even more specialized capabilities. The checking account from LiliApp Inc., an online-only bank for gig-economy employees and business owners, has a tax-write-off tracker. The monthly subscription cost for Majority, a digital bank for immigrants, includes unrestricted foreign transfers.
3. Quit your subscriptions in order to protect your finances
According to a study conducted by C+R Research earlier this year, the average American underestimates the cost of subscription fees by about $130 and spends more than $200 each month on them. Approximately 75% of consumers claim that it is simple to forget about recurring expenses, and 42% stated that they were still making payments for a subscription they had forgotten about. According to data from Rocket Money, a personal financial program that records spending, the monthly fees for streaming services, subscription boxes, gym memberships, and mobile apps have all risen over the previous year. When compared to 2021, subscription spending among Rocket Money users climbed by an average of 8.5% in 2022. Once you give a business permission to withdraw recurring payments from your account, they are free to alter the price without your consent, making it simple to lose track of your spending.
4. Refinance your bills
Another way to protect your finances is to pick up the phone and bargain for all the recurring expenses you can’t stop. Since it is more expensive to gain a new client than to retain an existing one, cable companies and cellphone providers might be willing to lower your fee, according to Ted Rossman, a consumer spending analyst at Bankrate. He advised customers not to be scared to request their previous rate back or to negotiate a price match with a rival. To prevent clients from canceling, there is frequently an unannounced retention incentive. Even if you’ve been a member for a while, you can still ask for any special offers or discounts that are being given to brand-new clients, he added.
The head of financial solutions at Brightside, a company that offers financial advice to employees, Sophie Raseman, cautioned that if you negotiate a lower rate with a service provider like your wireless provider, you might be given a promotional rate that rises significantly after a trial period ends. She advised setting a reminder to decline or cancel at that time. Requesting the removal of particular fees from your bill is an additional approach to save money. These expenses may be included as “other costs” on your phone, internet, or cable bill.
5. Make sure to protect your 401(k)
The general recommendation for retirement plans is to let them operate automatically and to avoid the urge to log in and make changes when the markets are down. But it pays to check into your accounts at least once a year and assess your savings rate, investment mix, and the kinds of tax-advantaged accounts you utilize in order to protect your finances. According to benefits provider Milliman, the Internal Revenue Service has increased the annual 401(k) contribution limit by $2,000 to $22,500 for 2023, the greatest increase in terms of money and percentage ever. The 2023 ceiling increases to $30,000 for those who are 50 or older.
Some Americans have had to temporarily reduce their 401(k) investments as inflation puts pressure on their budgets. The good news is that, if you have a strategy to catch up later, the impact of doing so—even for a few years—isn’t as big as you may expect. The increased contribution limits present a “unprecedented opportunity” for people who can save more, according to Ed Slott, a certified public accountant and IRA specialist in Rockville Centre, New York.
The choice between a standard 401(k), where contributions are deducted and withdrawals are taxed, and a Roth 401(k), where contributions are taxed and payouts may be tax-free, is now available to more investors with money in employer retirement plans. Additionally, employees can split their 401(k) contributions between the two. Future benefits from utilizing parts of each are possible. One benefit of contributing to a Roth is that retirees can withdraw funds tax-free in years when doing so from a traditional 401(k) would put them in a higher tax rate.
