We've seen it all over the last couple of years – record low interest rates, supply shortages (and difficulties receiving goods), housing shortages, record high gas prices, climbing interest rates and the highest rates of inflation in 40 years. The inflation rate indicates how fast prices of common household goods are increasing.
Many experts predict the United States will be in a recession over the next year or at least experiencing slower economic growth. Some Wall Street analysts believe there is a 40 percent chance of recession in 2023.
A recession occurs when the economy experiences significant declines over months or years. This is sometimes measured by rising unemployment rates, decreases in retail sales and at least two consecutive quarters of negative economic growth measured by the gross domestic product (GDP).
So, how do you prepare for the upcoming year? Here are tips on how to deal with economic uncertainties in the months ahead.
Pay off your debts. If possible, try to pay off your credit
card bill each month to avoid paying interest. If you cannot pay it off
completely, commit to paying a certain amount toward your credit card each
month to get closer to becoming debt-free.
You may also consider creating a plan to pay off other debts, like student loans and medical bills. The sooner you pay off all your debts, the sooner you can put more money into your savings account.
- Review your spending and saving patterns. Make a list of how much you earn each month and your approximate monthly expenses. Be sure to break your expenses down into different categories so you can see where your money goes. An easy way to do this is by using a budgeting app or creating a budgeting worksheet. WaFd Bank offers a free online app-based budgeting tool where you can track your spending.
- Cut costs. Once you can more clearly see where your money goes each month, you can start reducing what you spend. Maybe you don’t need as many streaming services or you can reduce your dining-out expenses. Or, maybe you can shave off a few more dollars a day by packing a lunch and filling up your travel mug with coffee before heading into work. This could easily save you $10 to $15 per day or more.
Keep investing in your retirement savings or start saving for
Saving for retirement is a long-term investment. Even if the economy has a
experts say your investments will grow over time so you should continue
putting money into your retirement accounts.
If starting a new retirement account, make sure to do your homework since there are different rules and restrictions for each type of account. WaFd Bank offers two types of Individual Retirement Accounts (IRAs) – traditional and Roth.
Save, save, save. When it comes to saving, many experts
recommend having enough money on hand to cover
three to six months of living expenses
in case you face a job loss, cut in hours or pay, or unexpected expenses
like medical bills.
Set small goals like saving an extra $25 or $50 each month. As you cut costs in other areas, you can put more money in your savings. Consider setting up automatic transfers from your checking to your savings account each month to ensure you meet your savings goal.
- Find new ways to earn money. If you have a hobby outside of work that could earn you a little extra pocket money, give it a try. There are many websites where you can post things for sale – whether you created them yourself or are looking to sell used goods or antique items.
Need help managing your money?
We're here to help. Visit wafdbank.com to open an account today, or call us at 800-324-9375 to learn more.
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Sources (outside of WaFd Bank):
- U.S. Bureau of Labor Statistics: https://www.bls.gov/opub/ted/2022/consumer-prices-up-8-5-percent-for-year-ended-march-2022.htm
- U.S. News & World Report: https://money.usnews.com/investing/term/inflation
- New York Times: https://www.nytimes.com/2022/06/28/business/recession-probability-us.html
- CBS News:
- Forbes: https://www.forbes.com/advisor/investing/what-is-a-recession/
- Washington State Department of Financial Institutions: https://dfi.wa.gov/financial-education/information/emergency-savings