As the new year began, most stock indexes posted consecutive weekly gains. It may not all be smooth sailing. Many economists predict that a recession will occur in 2023 as the Federal Reserve raises interest rates in order to control inflation. Many people associate the word “recession,” with 2008, but most economists don’t expect it to be that severe this time.
It is still important to prepare yourself for the uncertain stock market, the rising interest rate and the possibility of a recession in the coming year. To make the most of this uncertain time, follow the three steps below.
1. Reduce your credit card debt
The average interest rate on credit cards is now 20.1%, and it’s rising. Consider paying off as much of your credit card balance as you can afford. You will reduce your monthly interest payments and also have more cash to combat inflation.
Review Your Emergency Savings
Financial experts generally agree that an emergency fund should be six months’ worth of expenses. A Bankrate survey conducted in January 2022 found that less than half of U.S. householders could cover an unexpected $1,000 expenditure. A good emergency fund may not make you wealthy, but it can prevent financial ruin during a downturn. Check the interest you earn on your emergency fund each month if you have one. Consider moving your emergency fund to a high-yield online savings account if the APR falls below 3%. Many of these accounts pay over 3%.
3. Recall the Basics
The old adage “buy low, sell high” is still relevant today. Many people hesitate to invest in the market when it is experiencing double-digit losses. Consider investing your extra cash if you have the necessary emergency funds and a longer-term outlook. The IRS has also increased the 401(k), contribution limit to $22,500 for 2023, and the catch-up contribution to $7,500 for those over 50. It’s a good time to review your contributions and make sure that you are contributing the maximum or enough to receive your employer’s match.
