Money Management

That’s some positive news. 

JPMorgan Chase CEO Jamie Dimon certainly isn’t one to mince words when it comes to economic warnings. The financial giant spent much of 2022 warning consumers to gear up for a recession. And last June, Dimon was quoted as telling investors to brace for an “economic hurricane.”

But Dimon may be relaxing a bit when it comes to those recession warnings. And that’s good news for consumers all around.

Things aren’t looking quite as bleak

CNBC recently reported that Dimon’s outlook on the economy isn’t as dire as it was last year. “The U.S. economy right now is doing quite well,” Dimon said. “Consumers have a lot of money. They’re spending it. Jobs are plentiful.”

Now that said, Dimon also acknowledged, “There’s always uncertainty.” But he followed up that sentiment with the statement, “That’s a normal thing.”

In January, the national unemployment rate not only fell to pre-pandemic levels, but reached a 54-year low. That, combined with the fact that consumers still seem to be spending money, is encouraging for the economy.

That said, it’s a good idea to prepare for the uncertainty Dimon alluded to. Things still have the potential to take a turn for the worse, especially if the Federal Reserve continues to fight inflation aggressively. If the Fed keeps raising interest rates, consumer spending could decline in a serious way. That could easily lead the way to a broad economic downturn.

How to prepare for a recession

One of the best steps consumers can take to gear up for a recession is to boost their emergency funds. At a minimum, having enough money in a savings account to cover three to six months of essential living expenses is crucial. But consumers who manage to save more buy themselves that much more protection in the face of job loss.

Consumers with high-interest credit card debt should also do what they can to try to shed it. Having that debt to contend with during a period of unemployment could be extremely taxing.

Working on income diversity is another good way to prepare for an economic downturn. The gig economy is loaded with opportunities these days, so picking up a side job could help many people not only shore up their finances, but also, get to a place where they have some protection in case they’re laid off from their main jobs.

And speaking of primary jobs, now’s a great time to work on filling in knowledge gaps and boosting skills. While being a valued employee doesn’t always mean avoiding a layoff, it’s harder for companies to part with workers they consider essential to operations. So spending some time improving job skills could mean not landing on the chopping block.

It’s encouraging to hear that Dimon has a more positive view of the U.S. economy now than he did a few months ago. But it’s also a good thing for consumers to be vigilant, and to do what they can to prepare for things to potentially get worse.

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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.JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

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It’s a scary thought, to say the least. 

Last week, Silicon Valley Bank collapsed and was put under the control of the Federal Deposit Insurance Corporation (FDIC). It was an announcement that sent shockwaves across the stock market and created a world of panic among consumers with money in various banks.

But do you need to be concerned about your bank failing? And if that happens, will you lose all of your money? Here’s what you need to know.

Will your bank collapse, too?

Let’s get one thing out of the way. Silicon Valley Bank’s demise was largely the result of poor financial decisions made by its management team and unfortunate circumstances that applied to that bank in particular.

In a nutshell, the bank tied up too much of its assets in Treasury bonds that it had to sell at a loss. On the heels of that loss, many companies were quick to withdraw their money from Silicon Valley Bank, leading to a quick collapse with a modern day bank run.

But many banks have their assets invested in a far more diversified manner and have a much broader client base than Silicon Valley Bank. So for the most part, experts aren’t anticipating a broad collapse of the banking industry. As such, if you have your savings account at another bank, you may not be impacted at all.

Your deposits are protected

Most major banks are FDIC-insured. As long as yours is, you should know that your money is protected for up to $250,000.

So, let’s say you have a $50,000 CD and another $100,000 in savings. In that case, you’re below the $250,000 threshold. So even if your bank were to fold, the FDIC would take over its assets and make you whole on your $150,000. All told, your cash is safe, and you wouldn’t be at risk of losing so much as a dime.

Now, what might happen is that you could lose access to your money for a day or two as the FDIC goes through the process of taking over your bank in the event of a failure. But the FDIC commonly acts very quickly in situations like these. Case in point: After Silicon Valley Bank collapsed on Friday, customers were informed they’d have access to their deposits by Monday, the very next business day.

What about larger deposits?

If you’re in the fortunate position of having more than $250,000 in cash to your name, then there are steps you can take to protect your money beyond what FDIC insurance will cover. For one thing, that $250,000 limit applies on a per-bank basis. So if you have $400,000 you want to keep in cash savings, you could simply split it up and deposit $200,000 into two separate banks.

Another option is to add a joint holder to your account. In that case, your FDIC insurance limit will increase to $250,000 per depositor, or $500,000 in total.

All told, it’s easy to see why a lot of people are spooked in light of what happened to Silicon Valley Bank. But rest assured that the collapse of one bank does not mean your bank is about to be next. And if you’re worried, know that your money is nice and protected thanks to the FDIC.

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They could really help you reach your goal. 

Among current retirees, the average age to leave the workforce is 61, according to a recent Gallup Poll. But among non-retirees, the average expected retirement age is 66. In 1995, it was 60.

Now, the good news is that Americans are living longer these days, so retiring in your mid-60s might still mean having a good 20 years of retirement or more to enjoy. But you may want to retire earlier than that, and that’s understandable.

To pull off an early retirement, you’ll clearly need to build up a lot of savings. Here are some essential moves for your IRA account that could lead you to your goal.

1. Max out retirement accounts

IRA contribution limits can change from one year to the next. This year, you can contribute up to $6,500 if you’re under the age of 50, or up to $7,500 if you’re 50 or older. And these limits apply whether you’re funding a traditional IRA or a Roth IRA.

Maxing out your IRA isn’t an easy thing to do — especially these days, given inflation. But if you manage to do so over an extended period of time, you might manage to amass enough cash reserves to pull off an early workforce exit.

In fact, let’s assume today’s IRA limits stay the same indefinitely. That shouldn’t be the case, but it’s easier for illustration purposes.

If you max out your IRA between the ages of 25 and 60, and your investments generate an average annual 8% return, which is a bit below the stock market’s average, you’ll end up with a nest egg worth over $1.1 million. That could be enough to sustain you during a longer retirement.

2. Don’t play it too safe

Many people are nervous about the idea of buying stocks. In fact, recent Motley Fool research found that 42% of Americans don’t have money in the stock market at all.

But if you shy away from stocks in your IRA and limit yourself to safer investments, you might end up with a much lower long-term return on your money. In fact, the example above used an 8% return, which is reasonable for a 35-year stock investing window. If we cut that return down to 4% for a less risky portfolio, it results in a nest egg worth just $490,000.

That’s still a lot of money. But it’s not $1.1 million.

3. Diversify

The stock market can be very fickle, which explains why some people may be hesitant to invest in it. But if you diversify your portfolio, you may be more likely to ride out downturns and build up more wealth over time.

There are different steps you can take to diversify your portfolio. One option is to put money into broad market ETFs. Another is to simply make sure you own stocks across a range of market sectors, like energy, tech, healthcare, and banks.

Early retirement is something a lot of people strive for. Make these moves in your IRA so you can actually pull it off.

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This is one of the most lucrative tax credits, but there’s a lot to know first. 

As part of the Inflation Reduction Act 2022, the tax credit available on electric vehicle purchases has been improved for vehicles purchased in 2023 and beyond. Qualified EV buyers can get a credit of as much as $7,500, making the clean vehicle tax credit one of the most lucrative available to individual taxpayers in the United States.

However, the credit isn’t just valuable — it’s also restrictive and complicated to qualify for. Here’s a rundown of what you need to know about qualifying for the credit in 2023 and beyond.

Will you qualify for the clean vehicle tax credit?

There are two different sets of qualifications to consider if you’re aiming for the $7,500 credit on a new electric vehicle — whether you qualify for the credit and whether the vehicle does.

First, determine if you’re eligible. The clean vehicle tax credit is available to individuals whose household income (modified AGI, or adjusted gross income) doesn’t exceed the following thresholds:

$300,000 for married couples filing jointly$225,000 for heads of households$150,000 for singles, married filing separately, and all other filers.

For purposes of this credit, you can choose to use your modified AGI in either the year in which you take delivery, or the year before.

For the vehicle to qualify for the credit, it must be a plug-in electric vehicle (EV) that has a battery capacity of at least 7 kilowatt hours, has a gross vehicle weight rating (GVWR) of less than 14,000 pounds, and must be made by a qualified manufacturer. And while it doesn’t necessarily need to be manufactured by an American automaker, it does need to undergo final assembly within North America.

It’s also important to note that plug-in hybrid vehicles can qualify, assuming they meet the battery pack requirement in the previous section.

Also, the MSRP of the vehicle can’t exceed $80,000 for vans, SUVs, and trucks, or $55,000 for other vehicles including standard passenger cars. It’s worth noting that the credit previously ran out after each manufacturer sold a certain number of electric vehicles, but this provision has been eliminated. For example, if you bought a Tesla in 2022, it wouldn’t have qualified, but in 2023 it can (assuming it is under the MSRP limits).

How much can you get?

For vehicles purchased new in 2023, the maximum amount of the clean vehicle tax credit is $7,500, and most taxpayers who meet the requirements discussed in the prior section will get the entire credit. Without getting too technical, the short version is that the credit depends on the vehicle’s battery capacity (in practice, some plug-in hybrids will get a lower credit), and will eventually depend on where the battery components were made once the IRS issues clearer guidance later in 2023.

It’s also important to note that for the first time ever, used electric vehicles can qualify for a credit. Eligible buyers can get a credit equal to 30% of the sale price, up to a maximum of $4,000.

However, the used car EV credit is significantly more restrictive than the already-tough-to-get new EV credit. For one thing, the income limitations are half of those mentioned earlier for the new vehicle version (so, $150,000 for married couples, etc.). And second, the vehicle must have a sale price of $25,000 or less to qualify, have a model year at least two years earlier than when it was bought, and must be purchased from a dealer.

Next year it gets a little easier

Starting in 2024, the clean vehicle tax credit will be available immediately as a point-of-sale rebate through a car dealer or manufacturer, meaning you won’t have to wait until you file taxes to get it — the seller can simply deduct the $7,500 from the sale price of the vehicle.

A valuable tax break if you qualify

The biggest takeaway is that the clean vehicle tax credit can be lucrative, but it is also very restrictive. For example, most used EVs being sold in 2023 (especially Teslas) won’t qualify because they sell for more than $25,000. So, before you rush out and buy your next vehicle with a big tax credit in mind, be sure you’re familiar with the requirements.

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This extra cost might be more expensive than you think. 

When you are buying a home, there are many costs you probably have on your radar. For example, you likely know you’ll have to make mortgage payments every month, and that you will have to pay things like utility bills and home repairs.

But, there’s bound to be some surprises as well. Trying to plan for as many of the expenses that you’ll incur is a good idea so you can fully understand how owning your own place will affect your budget. And, in many parts of the country, there’s an important expense you may not think about but that you can’t forget.

This homeownership cost may not be optional

Depending on where you live, pest control is one expense you may absolutely need to add to your housing budget.

That’s because, in many areas — especially in the warmer parts of the country — it’s really difficult to keep pests like palmetto bugs or scorpions from becoming a big problem in your house unless you have a professional pest control service that comes in regularly.

Having these pests in your house can sometimes be dangerous (especially things like scorpions if you have pets or babies) and it can also be really gross and frightening even if the bugs don’t present a threat to your safety.

Trying to eradicate them yourself isn’t always effective, and it can be dangerous to deal with chemicals you aren’t 100% sure how to use. And some treatments must be applied by approved pest control professionals by law.

If you find yourself in a house that has regular insect visitors, the last thing you want to do is worry about whether you can afford to get rid of them without busting your budget. So, if this is likely to be a problem in your area — as it is in many locations across the U.S. — you should do your research into what this will cost you upfront and factor it in as an essential expense when you are deciding how much house you can afford to buy.

How much will pest control cost you?

If you are in need of pest control based on a bug problem where you live, it’s often most cost effective — and better for your peace-of-mind — to have a regular contract with a pest control service. With these types of contracts, they’ll usually come out quarterly or even bi-monthly to provide preventive treatments. And, usually your contract will also include additional visits as needed if you spot insects around where you live.

The costs of these types of contracts varies, but typically you can expect to pay somewhere between $400 and $950 annually. This is a big sum of money, but it can be cheaper than getting periodic emergency treatments done as needed when you see bugs crawling around your home. And, it is likely well worth paying to avoid the unpleasant experience of turning on the light at night and seeing bugs scurrying.

Just be sure to plan for it, so you don’t end up spending more than you should on housing due to this added essential annual expense.

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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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