5 Smart Financial Tactics to Use During a Recession
Inflation can make people nervous about the future. Here are a few smart ways to manage your money in any economic climate — but especially during a recession. NO. 1: MAKE EVERY DOLLAR COUNT. This year, the price of gas has climbed considerably, but what should you do when driving is part of your job? Dan Varroney, founder of consulting firm Potomac Core and expert on economic performance, told NBC that people can stretch their dollar by utilizing mass transportation, carpooling, or walking. You can also combine trips with multiple stops or shop locally to save on gas and time in the long run. NO. 2: CHECK YOUR SPENDING. The internet is full of trendy subscription- model brands and products, but are you still paying for ones you aren’t using? A 2021 Chase survey revealed that two- thirds of consumers have forgotten
about at least one recurring payment in the last year. In fact, more than 70% of consumers waste over $50 every month on recurring payments for things they no longer need! Double-check your statements for anything you might’ve forgotten about. NO. 3: GET RID (OR DON’T USE) HIGH DEBT CREDIT CARDS. Canceling a credit card can have some temporary consequences on your credit score, but if you can afford it — or need to remove the temptation altogether — cancel credit cards with high interest rates. Get a card with 0% APR if you need time to pay off new purchases before interest kicks in. NO. 4: BOOST YOUR EMERGENCY FUND ASAP. In life, setbacks can happen when least expected — and least wanted. This is the time for cushioning the fall in case you have any large unexpected expenses
that could have major consequences on you and your family’s livelihood.
NO. 5: ROLL OVER TO A ROTH IRA DURING THE MARKET DOWNTURN. Since IRA contributions are invested into the market, the downturn makes it cheaper to transition your after-tax traditional IRA into a pre-tax Roth IRA, which means you’ll keep the full dollar amount of your account in retirement. According to Clark Kendall, certified financial planner and CEO of wealth management firm Kendall Capital, transitioning into a Roth IRA may “cost 20% less if your retirement account is down 20%.” Put these tips in your back pocket — they just might help get you through any economic climate!
Rethinking the 401(k) A Tax Time Bomb
When the individual retirement account made its debut, no one knew it would transform how Americans plan for retirement. For most people, pensions are a relic
increasing the seed money. But the account’s tax-deferred nature poses a problem for the future. Imagine for a moment that you are a farmer. It’s time to buy your annual supplies, and the seller gives you an option. You can either pay taxes on the seeds when you purchase them or later on the harvest. You immediately know that the value of your crops will be more than the cost of your seeds — it’s how you make money. So, deferring the tax until later would be foolish. Unfortunately, investing in a 401(k) is much like paying taxes on the harvest. You put a smaller amount of tax- deferred money in, watch it grow, then pay a percentage on both your original investment and the profit. Though watching that money go into your 401(k) and grow tax-free feels good,
reality hits hard once it’s time to start making withdrawals.
Thankfully, Roth 401(k)s now exist, which allow you to invest post-tax paycheck contributions. Since all 401(k) accounts typically offer limited investment options, investors may want to consider contributing to a Roth 401(k) to the maximum their employer will match. Additional savings may be better invested in alternatives that will not result in tax upon withdrawal. The 401(k) isn’t all bad news, and it’s certainly better than no retirement strategy at all. But the account is generally best incorporated as only part of a retirement savings strategy. Even a diversified 401(k) is unlikely to set you up for the future you want on its own. It’s a helpful tool, but it shouldn’t be the only one in your toolbox.
of days gone by, and 401(k) plans have become the
primary method of saving for one’s post-work years. Sept. 9 is National 401(k) Day, and many financial advisors will tell you to leverage yours for all its worth. But is it your ideal method of saving for the future? Through a 401(k), workers have a portion of their pre-tax earnings automatically deducted and deposited into an investment account. They often receive a “match” from their employer,
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