If you’re feeling a bit anxious about the economy, you’re not alone. With inflation still relatively high, interest rates still up, and a presidential election looming, economic optimism is not universal among consumers. But more than half of Americans say they are mostly or very optimistic about their own finances.1
To boost your optimism about your money, consider these 5 tips. Practicing financial planning basics can help you prepare for any kind of market or economy.
1. Check your spending — aim to spend less than you bring home
Inflation has cooled quite a bit from the high set in 2022 but things may still seem expensive since prices jumped so significantly in such a short time. For example, the cost of food increased by 9.9% in 2022 and 5.8% in 2023 and is predicted to increase by just 2.2% in 2024.2
Spending and debt could have crept up over time, so it can be a good idea to make sure you have a handle on your expenses. Knowing how much you spend on essentials and how much goes to discretionary purchases can help you cut unnecessary expenses if needed.
If you're struggling to cut out some spending, consider your long-term goals. Lining up your spending with your values can help you prioritize the purchases that are most important to you.
2. Build or maintain your emergency savings
Commons Capital suggests saving at least 3 to 6 months’ worth of essential expenses, like food, housing, and medical care, in an emergency fund. If you’re just getting started, or restarting, consider aiming for an initial cash buffer of $1,000. Then keep going until you hit your savings goal, and if you dip into it, make sure to replenish up to the 3-6 month mark.
If you don’t have an emergency fund, using automation to help build up your savings can make it easier. That simply means setting up an automatic transfer to your savings account so you never have to think about it. If it’s available, you can use direct deposit to transfer a portion of your paycheck to a designated savings account—or you can set up recurring transfers to whisk the money out of your spending account and into savings on the same day that you’re paid.
3. Pay down high-interest credit card debt
Credit card debt has gotten more expensive as interest rates have gone up. In May, the average interest rate on an existing credit card account was about 22% and, for new offers, the average was over 23%.3
If you’re carrying a credit card balance from month to month (it happens to the best of us), now may be a great time to investigate your options for getting rid of that debt. First, check your credit card statement to see your current interest rates. Rank your debts from highest rate to lowest.
Decide on a strategy for paying off debt. If you have more than one credit card debt or loan, it can be a good idea to aggressively pay down one debt at a time while making the minimum required payment on your other loans. Starting with the highest-rate debt first and focusing your efforts there is the most efficient way to tackle multiple loans.
Consider if refinancing that debt makes sense. If you have more than one card or loan, you may even want to consolidate them into one lower rate loan. Though balance transfers often come with a fee, a zero-interest rate balance transfer could help you whittle down the balance without interest piling on each month.
If you are a homeowner, consider consolidating high-cost credit card debt into a home equity loan or line of credit.
4. Review your retirement savings
If you’re saving for retirement, congratulations! That is a powerful step to take for your future. Now that the middle of the year is close, take a look at your contributions to your workplace retirement savings plan, if you have one, to make sure you’re on track to save as much as you want to this year. Commons Capital suggests aiming to save at least 15% of your pre-tax income for retirement, that does include any potential match from your employer.
If other financial priorities have kept you from saving as much as you’d like, that is understandable—we all have a limited amount of money but seemingly endless expenses. When you’re able to, consider contributing 1% more to your retirement account to start ramping up. If it’s possible, consider saving at least enough to get the full match offered by your employer (if there is one offered). It is like free money so you don't want to leave it on the table if possible.
5. Check your investment mix
Big moves in stocks or bonds held in your account could skew your investment mix—for example, an investor may have intended to hold 60% in stocks but, after market moves, has 70% in stocks.
It could make sense to review your investment mix (e.g., stocks, bonds, and short-term investments) and confirm that it is aligned to your investment time frame, financial needs, and comfort with risk.
If it’s not, it may be time to rebalance. The goal of rebalancing is to reset your asset mix to bring it back to an appropriate risk level for you. Sometimes that means reducing risk by increasing the portion of a portfolio in more conservative options like bonds and cash, but other times it means adding more risk through stocks and stock funds to get back to your target mix.
Investing in a mix that you can stick with through good markets and bad that also provides growth potential is one of the best ways to help ensure success. If you need help picking a diversified investment mix that will work for you, Commons Capital offers a range of managed accounts for a variety of goals and needs. If you need extra support, a managed account could help you stay on track to meet your goals.
