Money Management

Do consumers still need to worry about a recession? Read on to find out. 

Financial experts spent much of 2022 warning consumers to prepare for a recession. And those warnings persisted during the first half of 2023.

But over the past few months, economists have scaled back those warnings. And now, most financial experts are backing away from the idea of a near-term recession and are saying we’ve managed to avoid one.

This change of tune makes sense. Unemployment is still low and new jobs continue to be added to the economy. Between that and a recent uptick in retail sales, it’s easy to assume that a recession is not going to hit any time in the next few months. And we may be able to avoid one in 2024 as well.

Retail sales lend confidence to a strong economy

In July, retail sales rose 0.7% faster than in June, according to the Commerce Department. And restaurant sales rose 1.4% in July compared to June.

This tells us that consumers are still willing to go out and spend money rather than curb their spending to conserve funds. And while that may not be 100% what the Federal Reserve wants, since the central bank is still hoping to see inflation dip further, it sends the message that consumers are still confident in the economy and either have money to spend, or are finding it.

Granted, it may be that some consumers are racking up debt to continue spending robustly, and that’s not good on an individual level. But on a broad scale, an increase in spending makes a near-term recession less likely.

It’s good to prepare nonetheless

Although 2023 isn’t over yet, we’ve managed to avoid a recession thus far, so there’s a good chance we’ll manage to close out the year without an economic downturn. And ideally, we’ll avoid one in 2024, too — or at least during the first half of the year.

But the reality is that it’s important to be recession-ready at all times. And the best way to do that is to have a fully loaded emergency fund.

Financial experts tend to agree that a good goal is to have enough money in your savings account to cover three full months of essential expenses at a minimum. That way, if you were to lose your job, you’d have money to tap to cover your bills in the absence of a paycheck.

Of course, if you’re able to save beyond three months’ worth of expenses, even better. It’s hard to know how a recession might impact your earnings ability and finances. So if you can push yourself to sock away six months’ worth of expenses in the bank, you’ll have that much more protection in the event of a layoff.

Remember, a recession is something you might experience more than once in your lifetime. So it’s good to try to always have savings on hand in case the economy takes a turn for the worse.

And remember, too, that even when the economy is strong, it’s still important to protect yourself, because you never know when your personal financial situation might change. Even if unemployment is low and the economy is thriving, you might find yourself out of a job if your company needs to make cuts. So your best bet is really to have money in the bank so you’re not immediately forced into debt in a situation like that.

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It costs money to improve a home. But read on to see why you might pay beyond the cost of your renovations. 

The average U.S. home has a value of about $350,000, says Zillow. But even if you buy a home that’s worth a lot less, in time, the value of your home might rise due to a combination of buyer demand, market conditions, and the improvements you decide to make.

You have plenty of reasons to invest in home improvements. Not only can they make your daily life more enjoyable, but they can also add to the value of your home so that when the time comes to sell it, you’re able to pocket a larger profit.

Now, you’re probably aware that home improvements can be expensive. And it’s important to be careful when financing them. After all, you’re already in the process of paying off a mortgage. That’s a large pile of debt right there. So piling on with a personal loan or home equity loan to cover renovations could throw your finances for a loop if you aren’t careful.

But let’s say you’ve run the numbers and have determined that you’re capable of paying your mortgage lender every month while also paying off the loan you need for home improvements. You may be feeling confident in your decision — but be careful.

Another expense could rise after you improve your home. And if it catches you off guard, your finances might suffer.

When your property tax bill soars

Seeing your home’s value increase is a good thing from a resale perspective. Plus, the higher your home’s value, the more home equity you end up with. That gives you the option to borrow against your equity should you so choose.

But there’s a downside to seeing the value of your home increase, and it’s that it has the potential to lead to a higher property tax bill. Property taxes are an unavoidable expense you incur when you own a home. And unlike your mortgage payments, they’re not set in stone.

When you sign a fixed mortgage that leaves you with a monthly payment of $1,200, that’s the amount you need to fork over. But your annual property tax bill could start at $4,000 and increase to $4,500 the year after, and then $5,000 the year after that. And the more you improve your home, the more your property taxes might soar.

Property taxes are calculated by taking your home’s assessed value and multiplying it by your local tax rate. So if your tax rate is 1% and your home is worth $300,000, you’re looking at $3,000 in annual property taxes. If you improve your home so it’s worth $400,000, you can expect your annual property tax bill to rise to $4,000.

Make sure there are no surprises

A higher property tax bill could be problematic if you’re in the process of covering a mortgage while also paying off renovations. It’s a good idea to research what sort of property tax impact your planned improvements are likely to have.

Often, you can call your local tax assessor, run through the specifics and cost of your renovations, and ask for an estimate of how it will impact your property taxes. Your assessor may not be able to give you an exact number, but they should be able to come up with a ballpark. (And the more specific you are, the more they can help you. So rather than just say you’re upgrading your kitchen countertops, say what specific stone you’re using.)

Also, many major home renovations need permits. So if that’s the case, your assessor might be able to refer to those permits to give you a more accurate estimate.

Either way, having that information ahead of time could help you run the numbers to make sure your total costs will be manageable. It’s a step worth taking to avoid unpleasant surprises after your renovations are done.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.

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Looking for a personal loan? Read on to see why putting it off might work to your benefit. 

Personal loans let you borrow money for any purpose. And for that reason, they tend to be a popular borrowing choice among consumers. As of the first quarter of the year, U.S. personal loan debt reached $225 billion, up from $178 billion a year prior, according to TransUnion.

You may be eager to sign a personal loan to address a number of different needs, whether it’s fixing up your car, renovating your home, or paying for courses that give you the skills you need to further your career. But now’s really not a great time to sign a personal loan. If you’re able to wait until 2024, you may find that it’s less expensive to take one out.

Avoiding debt right now is a smart move

It’s generally a good idea to keep your debt load as low as possible. But right now is an especially bad time to be signing any sort of loan, whether it’s a personal loan, auto loan, or home equity loan.

The reason? Since March 2022, the Federal Reserve has raised interest rates 11 times in an effort to cool inflation. The Fed doesn’t set personal loan rates, or any consumer borrowing rates, for that matter. Those rates are determined by lenders on an individual basis.

Rather, the Fed oversees the federal funds rate, which is what banks charge each other for short-term borrowing. When that benchmark interest rate rises, lenders tend to follow suit. So right now, even if your credit is great, you might end up with a higher interest rate on a personal loan than you want to get stuck with. And that could leave you with expensive monthly payments.

You might get a better deal in 2024

While interest rates are up right now, things could start to change in 2024 if the Fed decides to cut rates. So next year might be a better time to put a personal loan in place.

Let’s say you’re looking to borrow $10,000 and pay it back over a five-year period. If you get stuck with an interest rate of 9% now, your monthly payments will be $208 and you’ll end up spending $2,455 on interest over the life of your loan.

But if you’re able to snag a 7% interest rate on that same loan next year with the same repayment period, you’ll be looking at monthly payments of $198 instead. And you’ll only end up spending $1,881 on interest.

If you’re not borrowing a particularly large amount, you may decide to just move forward with a personal loan now so you don’t have to put off paying for whatever it is that money is supposed to finance. In this example, the difference between a 7% interest rate on a personal loan versus 9% is $10 a month.

Granted, the difference in total interest is more significant. But on a monthly basis, the $10 may not make such a big dent in your finances.

The point, however, is to recognize that borrowing conditions generally just aren’t optimal right now. So if you are able to wait on signing a personal loan for, say, another six months or so, you might benefit from that financially.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Eager to max out your IRA? Read on to see how you can accomplish that. 

Saving money in an individual retirement account (IRA) could make it so you’re able to retire comfortably. This year, IRAs max out at $6,500 for workers under the age of 50 and $7,500 for workers 50 and over.

If you’re 35 years old and max out your IRA this year at $6,500, a couple of cool things can happen. First, you’re able to not get taxed on $6,500 of earnings. If you fall into the 22% tax bracket based on your income, your $6,500 IRA contribution saves you $1,430 in taxes this year.

Plus, even if you don’t contribute another dollar to your IRA beyond 2023, if you invest your $6,500 contribution over the next 30 years at an average annual 10% return, which is consistent with the stock market’s long-term average, you’ll grow your balance to over $113,000. And while you may want to aim for a larger nest egg than that (considering that you might need that money to last for 20 years or longer), the point is that maxing out your IRA for a single year could go a long way.

Of course, finding $6,500 for an IRA is easier said than done, especially if you’ve only modestly funded that account so far this year. But if you’re serious about meeting that goal, here are a few steps that could get you there.

1. Automate your contributions

The nice thing about 401(k) plans is that contributions are deducted automatically from workers’ paychecks so they never miss that money, and they never have to think about setting it aside for retirement. But thankfully, you can pretty much do the same thing with an IRA.

While you can’t have IRA contributions deducted from your paycheck, you can set up an automatic transfer to your IRA so that every time a payment from work lands in your checking account, a portion is sent directly into your retirement plan. It’s a good way to force yourself to stay on track.

2. Boost your income with a side job

If you’re an average earner, it may be quite difficult to find $6,500 you don’t need for ongoing expenses. But if you’re able to boost your income with a side hustle, you might have an easier time maxing out your IRA.

Of course, you’ll need to be prepared to put in a decent amount of time at a side hustle if you’re hoping to come up with $6,500 to put into an IRA. But it may also be that you’ve already contributed $3,500 to that account to date. If you’re able to work a side hustle that pays you $1,000 a month from October through December (and yes, such gigs do exist), you’ll have reached your goal by the end of the year.

3. Cut back on spending for the next seven months

One lesser-known IRA rule is that you have up until the following year’s tax-filing deadline to finish funding your account. Since we’re in mid-September, you have seven months to finish maxing out your 2023 IRA by mid-April 2024.

With that in mind, if you’re hoping to fund your IRA solely by reducing your spending over the next seven months, that may not work. If you’ve put in nothing so far, to reach your $6,500 target, you’d need to spend about $929 less monthly. That may not be doable. Even if you only have to come up with half that amount, it’s still a lot of expenses to cut.

But let’s say you’re able to reduce your spending and work a side hustle. With those efforts combined, putting $6,500 into your IRA may be a lot more feasible.

Maxing out your 2023 IRA could do a lot of great things for your finances. But if you’re not able to max it out, don’t sweat it. First of all, you can always regroup in 2024. But also, if you’re able to put $5,000 into your IRA, or $4,000, that’s far better than nothing. Quite the contrary — it’s a big accomplishment.

So while it’s technically not too late to max out your 2023 IRA even if you have a ways to go, you can also give yourself grace if that goal doesn’t end up being attainable.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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