Money Management

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What happenedU.S. consumers have spent more than half the savings they accumulated during the initial stages of the COVID-19 pandemic, according to research from J.P. Morgan Asset Management. From March 2020 to August 2021, they amassed $2.1 trillion in excess savings. J.P. Morgan defines excess savings as anything saved above and beyond what consumers normally put away.Since then, they’ve had to tap into those funds. In early 2022, Americans had $1.9 trillion in excess savings balances. By the end of the year, that had dropped to $0.9 trillion, in large part due to rampant inflation. The hope is that this changes in 2023, as “there are convincing signs that an inflation down trend is now underway,” said Dr. David Kelly, Chief Global Strategist for J.P. Morgan Asset Management in the latest Guide to the Markets update.So whatDespite the economic uncertainty in the early stages of the pandemic, many Americans were able to improve their personal finances. People prioritized saving money for financial security. That, combined with stimulus checks and enhanced unemployment benefits, allowed consumers to significantly increase their savings rates.Having enough savings is important for every adult. Financial experts have traditionally recommended that adults have an emergency fund with at least three to six months of living expenses. Since the pandemic, some financial experts have increased their recommendations to as much as 12 months in emergency savings.With savings rates falling, it puts consumers in a more precarious position. If you’ve been one of the many who needed to spend their savings over the last year, it could leave you vulnerable if an emergency happens. Insufficient savings also makes it harder to reach your money goals.Now whatAlthough saving money has been challenging due to inflation, it’s one of the most important financial habits. If you’ve had to dip into your savings, here are good ways to get back on track:See where you can spend less. It’s never fun to tighten up your budget, but it’s better than losing ground financially. Look for expenses you can cut or reduce for the time being.Try budgeting apps to better manage your money. These help you make the most of your income and track where your money goes.Make sure you have a secure source of income. This makes it less likely you’ll need to tap into your savings. Consider starting a side hustle or picking up some freelance work, as multiple streams of income are better than one.Use all the savings tools available to you. If you have good credit, make sure you’re using a cash back credit card. Before you shop for anything, check coupon apps to see if there are deals available.You might not be able to save as much as you were early on in the pandemic. That’s understandable, as economic conditions have changed. Even if you need to lower your savings rate, do your best to save something every month so that you continue to progress financially.Alert: highest cash back card we’ve seen now has 0% intro APR until 2024If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes. Read our free reviewWe’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. 

What happened

U.S. consumers have spent more than half the savings they accumulated during the initial stages of the COVID-19 pandemic, according to research from J.P. Morgan Asset Management. From March 2020 to August 2021, they amassed $2.1 trillion in excess savings. J.P. Morgan defines excess savings as anything saved above and beyond what consumers normally put away.

Since then, they’ve had to tap into those funds. In early 2022, Americans had $1.9 trillion in excess savings balances. By the end of the year, that had dropped to $0.9 trillion, in large part due to rampant inflation. The hope is that this changes in 2023, as “there are convincing signs that an inflation down trend is now underway,” said Dr. David Kelly, Chief Global Strategist for J.P. Morgan Asset Management in the latest Guide to the Markets update.

So what

Despite the economic uncertainty in the early stages of the pandemic, many Americans were able to improve their personal finances. People prioritized saving money for financial security. That, combined with stimulus checks and enhanced unemployment benefits, allowed consumers to significantly increase their savings rates.

Having enough savings is important for every adult. Financial experts have traditionally recommended that adults have an emergency fund with at least three to six months of living expenses. Since the pandemic, some financial experts have increased their recommendations to as much as 12 months in emergency savings.

With savings rates falling, it puts consumers in a more precarious position. If you’ve been one of the many who needed to spend their savings over the last year, it could leave you vulnerable if an emergency happens. Insufficient savings also makes it harder to reach your money goals.

Now what

Although saving money has been challenging due to inflation, it’s one of the most important financial habits. If you’ve had to dip into your savings, here are good ways to get back on track:

See where you can spend less. It’s never fun to tighten up your budget, but it’s better than losing ground financially. Look for expenses you can cut or reduce for the time being.Try budgeting apps to better manage your money. These help you make the most of your income and track where your money goes.Make sure you have a secure source of income. This makes it less likely you’ll need to tap into your savings. Consider starting a side hustle or picking up some freelance work, as multiple streams of income are better than one.Use all the savings tools available to you. If you have good credit, make sure you’re using a cash back credit card. Before you shop for anything, check coupon apps to see if there are deals available.

You might not be able to save as much as you were early on in the pandemic. That’s understandable, as economic conditions have changed. Even if you need to lower your savings rate, do your best to save something every month so that you continue to progress financially.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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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Could Ramsey’s advice help you weather the storm? 

If you listen to many experts, an economic storm is brewing. Rising interest rates combined with high inflation could potentially result in a period of downturn called a recession. Although some experts believe the country may already be in a recession, others think one is likely to arrive in 2023.

If we go into a recession, it’s important to be prepared. After all, Dave Ramsey describes recessions as akin to hurricanes, and when such a big storm comes, you don’t want to be left unprepared.

Why is a recession like a hurricane?

According to Dave Ramsey, “recessions are kind of like hurricanes,” and there are a few reasons why these periods of economic contraction are similar to a major adverse weather event.

“It’s hard to predict when they’ll hit and how much damage they’ll cause,” Ramsey explained. “But instead of downed trees and smashed houses, the damage from a recession usually looks like this: lost jobs, a tanking stock market and bankrupt businesses.”

Ramsey pointed out that, like hurricanes, recessions are inevitable and will arrive at some time. And, like hurricanes, recovery from them is possible — but the key to making sure they don’t damage your own situation is to make sure you are prepared before the storm hits.

How can you prepare for a coming recession?

When it comes to getting ready for a recession, you won’t be putting up hurricane shutters or moving to high ground. Instead, you’ll be getting your financial house in order and making sure you have the resources available to cope with an economic downturn.

There are a few ways you can do that, including taking the following steps:

Increase your savings: If you have money in a high-yield savings account, you’ll be prepared for whatever adversity life throws your way in a recession. You won’t have to worry about where the money to pay bills will come from if your income takes a hit. And you won’t have to worry about selling investments during a market downturn and taking a permanent loss just because you need the cash. Your savings will act like hurricane shutters, shielding you from the worst of the storm.Reduce your monthly bills: If you have fewer ongoing financial obligations, you won’t have as much to worry about in case of a long economic downturn. You can get by on less. Reducing or eliminating the balance on variable interest rate debt (like credit cards) can be especially helpful since your rates will go up when interest rates rise to help fight inflation.Diversify your income: if you have multiple income sources, you won’t see your financial life damaged as badly if one of them takes a direct hit from the storm. You can keep earning money from other places. You can diversify your income by taking on a side hustle, starting a small business of your own in your spare time, or investing in income-producing assets.

The more secure you are financially, the better you’ll be able to withstand a hurricane of a recession. Start taking as many of these steps as you can ASAP before the storm is at your door.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

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Read our free review

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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Shedding your debt in short order could work to your benefit. 

If you closed out 2022 with a pile of credit card debt, rest assured that you’re not alone. Unfortunately, many people have had to rack up debt this year due to inflation. And even during periods when costs aren’t inflated, it’s common to wrap up the holiday season with some amount of debt, so if that’s the boat you’ve landed in, it’s not so unusual.

At the same time, starting off a new year with credit card debt is hardly ideal. Not only can it be demoralizing, but also, the longer you carry that debt, the more it’s going to cost you in interest. And if you allow your debt to linger for too long, you might reach the point where the interest you pay exceeds the initial charges you made.

If you’re eager to shed your debt as quickly as possible in 2023, the right strategy could be your ticket to meeting that goal. And you can use these tactics to eliminate your debt well before the end of 2023.

1. Tackle your costliest balances first

You might owe money on a few different credit cards. Chances are, each one has a different interest rate attached to it. Your best bet for shedding that debt quickly is to pay down your balances in order of most expensive to least expensive interest rate. So if, for example, you have a card with a 19% interest rate and another with a 14% interest rate, you’ll want to tackle the balance with a 19% interest rate first — even if it’s larger than your other balance.

2. Consolidate your debt with a balance transfer

If you have decent credit, you might qualify for a balance transfer offer. That allows you to move your various credit card balances onto a new card with a lower interest rate attached to it. In fact, you’ll commonly find that you’re able to snag a 0% introductory APR on a balance transfer, thereby giving you a break from racking up interest as you pay your debt off.

While a balance transfer can be a great way to pay down debt quickly, you should know that these offers tend to come with fees, often as a percentage of the balance you’re moving to the card. You’ll need to crunch the numbers to make sure a balance transfer makes sense. And also, you’ll want to do your best not to add to your balance as you’re paying it off.

3. Consolidate your debt with a personal or home equity loan

If a balance transfer isn’t a good option for you, you can instead try consolidating your credit card debt with a home equity or personal loan. The former option obviously only applies if you own a home whose equity you can borrow against. But in either situation, the benefit of taking out a loan to pay off your credit card debt is that you’ll generally snag a much lower interest rate in the process.

Plus, both personal and home equity loans offer the benefit of fixed interest rates. That means your monthly payments won’t change due to rising interest rates, so they may be easier to work into your budget.

Starting a new year with credit card debt isn’t wonderful, but it also doesn’t have to be a terrible thing. And if you employ these strategies, you may find that you’re debt free well before the end of 2023.

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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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Maintaining an older car is often cheaper than buying a new one. 

Car repair bills are one of those unavoidable parts of owning a car. Even if you’re an incredibly lucky driver and never get into an accident of any kind while driving (or even have another driver hit your parked car), car ownership isn’t free. You’ll be on the hook for routine maintenance and repairs like oil changes, tire rotation, new batteries, and so on. No one is happy to get a phone call from the mechanic telling you your car needs an expensive repair, but that was the situation I recently found myself in.

I drive a 2009 model year car that I bought new back at the start of my last career, about a year after I finished graduate school. It’s seen me through a lot, including multiple long-distance moves and epic road trips as far west as the Southern California coast and as far east as Prince Edward Island, Canada. When I was working on site (rather than from home, as I do now), it also took me to and from work every day. These days, I use it to run errands and buy groceries, and it’s still an awesome road trip vehicle (excellent highway gas mileage and comfortable to drive).

I recently noticed the car was making a clunking sound when I made turns, so I popped over to my mechanic to see if they could take a look. I got the phone call not long after my walk home from the shop: I needed some repairs to the back end, including new coil springs and shocks, plus a wheel alignment. The total? $1,250. While this certainly wasn’t happy news, I actually feel pretty okay about it. Here’s why.

It’s less expensive to drive an old car

While I openly acknowledge my biggest financial mistakes, keeping a car for more than 13 years is definitely not one of them. I got the car with a 60-month auto loan, and I made every single one of those payments on time and in full, and was thrilled to make the final one in 2014. Car payments are expensive; as of July 2022, the average monthly payment on a new car hit $733. And while insuring a car can also be pretty pricey, keeping insurance on a paid-off car is often cheaper.

Since I definitely don’t want to have to replace my car, I will happily pay to maintain it. Broken coil springs are just one of those things you might encounter if you drive an older car (especially if you live in a place that gets serious winter weather like I do — road salt isn’t car-friendly).

I made my new credit card’s sign-up bonus

I recently got a new credit card I’m excited about, and it came with a sign-up bonus. I had six months to spend a chunk of money on the card, and I’d get 10% of that money back as a statement credit. A large purchase can be a good way to make that minimum spend if you know you have one coming up. I didn’t when I got the card, but I wasn’t worried, as I deliberately chose a credit card that pays cash back in a major spending category for me and I expect to get a lot of use out of it.

As it turned out, I made the sign-up bonus minimum spend in just two months, thanks to putting this car repair on the credit card. But, for the first time in my life, I won’t be carrying that big charge forward and paying interest on it.

I have money in savings to cover the bill

I got out of debt in 2022, and since I finished my debt payoff a few months earlier than expected, I’ve been able to save up a chunk of money. Some of that will cover the taxes I owe as a freelancer, and some of it forms the fund I’m saving up to buy a house. But I have flexibility to dip into it for issues like this repair bill, and indeed, intend to always have an emergency fund going forward. So while I may have handed over my credit card at the mechanic shop, I then turned around and paid off that charge with money I had saved.

While a $1,250 car repair isn’t ever really good news (unless you were expecting a much higher tab at the mechanic), I’m not all that upset about it. It’s just part of life. Getting my finances into shape in 2022 left me in a position of being able to cover the bill, and that feels really good. That said, my savings account and I will both be happier if it’s a while before we have to handle another surprise expense such as this one!

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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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