As inflation rises, you may be feeling the increased costs of goods and services and wondering if your paycheck can keep up. According to the Bureau of Labor and Statistics, the cost of food increased 10.4 percent for the year ending June 2022. To put into perspective how significant that is, it’s the largest increase in America since February 1981.
Gen Z has never seen an increase like this, and many aren’t prepared.
To fuel the fire even more, the USBLS also states gas prices increased 59.9 percent in that same time period. That’s the largest 12-month increase since Jimmy Carter was president in March of 1980. Electricity prices rose 13.7 percent, and natural gas saw an increase of more than 38 percent. Neither has seen increases like that since 2006 and 2005, respectively.
That’s the bad news. The good news? There are things you can do to protect yourself from going under as prices continue to rise. Financial experts are now advising individuals to begin preparing for what looks to be a recession on the horizon. Here are four things you can do to help your bank account weather the coming storm.
Create a Budget and Learn to Live With It
As painful as it may be, creating a realistic monthly budget can be your ticket to freedom. Knowing how much money you have to work with each month will keep you from overspending and racking up additional debt or tapping into your savings. Look for unnecessary expenses such as long-forgotten subscriptions you can cancel and cut back on things like eating out or online impulse shopping.
Work Now to Pay Off Debt
In an effort to slow down a possible recession, the Federal Reserve has already begun raising interest rates. How does that affect you? If you owe any consumer debt, such as a balance on a credit card, your interest rate could also increase, costing you even more until you pay off your debt. Prioritizing debt payoff now will save you money later on.
Alonso Rodríguez Segarra, CEO of Advice Financial, says, “According to a CNBC report, the average credit card rate will soon be above 20%, representing one of the highest rates in history, so there is no way you can beat your credit card debt; it will grow much faster than your salary can increase. Some studies show that wages could grow 4% during 2023, which means that your card debt will grow five times faster than your salary.”
“When paying off debt, there are two common approaches that are called the snowball method and the avalanche method” explains Doug Amis, President & CEO of Cardinal Retirement Planning. “The secret to their success is rooted in the prioritization of paying down debt. In most situations I’ve analyzed, one technique can be marginally better than the other, but the key to success is committing to a payment schedule to knock down your consumer debt.”
Build Up Your Savings Account
Creating a budget to keep from overspending is the first step to protecting your bank account during a recession. Paying off debt will save you money, but actively working to build up your savings account is equally important. As you work on your budget, add a line item to pay yourself as much as you can to work on building up your savings account.
While the general rule of savings is to have three to six months’ worth of your living expenses saved, during times of recession when the risk of job layoff increases, it’s a good idea to save even more if you can. This will help cover things like food, rent, utilities, and monthly payments in the event you lose your jog. Using online tools can also help you calculate how much you’ll need to save to cover all your expenses.
Jen Swindler, Senior Wealth Manager at Vincere Wealth Management, says, “During times of uncertainty, I typically advise at least 6 months of cash savings be set aside. Even if we haven’t officially entered a recession, now is the time to work towards this goal. If you are in a single-income household, 6-9 months is ideal during a recession. “
Your savings account can also help cover unexpected one-time expenses like car repairs or medical bills. The more you can save, the less you’ll need to put on a credit card if the worst happens.
Hold Off on Buying a New Home or Car
Unless it absolutely can’t be helped, now is not the time to buy a new home or automobile. As of October, the Federal Reserve has already raised the federal funds rate five times in 2022 and suggests it will do so again before the end of the year.
While interest rates dropped below 3 percent as recently as last year, at the time of writing, the average 30-year fixed-refinance rate is close to seven percent. With rates on the rise, you’ll save yourself tens of thousands of dollars by holding off buying a new home until post-recession rates begin to cool off.
Help Is There if You Need It
Even the best of plans can go awry, so if you’ve done all the above and find yourself short on cash, you may want to look for a short-term financial solution. There are lenders available to help you bridge the gap between what you have and what you need. Educate yourself and don’t be afraid to use them if needed.
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Karee Blunt is a nationally syndicated travel journalist, focused on discovering destinations and experiences that captivate and inspire others through her writing. She is also the founder of Our Woven Journey, a travel site focused on inspiring others to create memory-making adventures with their loved ones. Karee is passionate about encouraging others to step out of their comfort zone and live the life they dream of. She is the mother of six kids, including four through adoption, and lives with her family in the Pacific Northwest. You can learn more about Karee on her about me page.