Top 3 In 2023: Maintaining Financial Wellness

In times of economic turbulence, preparing financially for the future is crucial. Financial advisors estimate a 35% chance of an economic downturn in the United States at the beginning of 2023. Institutions like Bank of America also predict an upcoming recession.

This article aims to guide you in preparing financially for this year. Austin Bankruptcy Lawyers will ensure your financial wellness remains intact during economic stagnation, recession, or inflation.

Prepare Your Financial Wellness

If the future outlook for finances worries you, precisely the possibility of a recession, now is the time to prepare and get ready. While the job market in the United States remains robust, things might change. This is an ideal time to get situated to get things in place.

Set A Budget

The number one thing to consider is setting a budget. If money is a source of anxiety, setting a budget is the best way to attain peace of mind. Doing so helps you understand how much money you spend, save and where you can reduce expenses.

Save

The second important aspect to consider is your savings. Given an impending recession, the goal should be to save three months of income to buy you some time if you’re laid off.

It is essential to carve out a portion from your budget, no matter how small, to contribute towards your savings. Putting coins in a coin jar can also be considered savings.

Eliminate Debt Interest Rates

Eliminating consumer debt interest rates is also crucial. High-interest rates on credit cards can drain a significant amount of your disposable income. It would help to pay off your high-interest credit cards first. This will free up some of your income to put into savings.

A plan and thinking it through is crucial while preparing for a financial crisis. Be watchful and mindful of expenses. If you have a budget, you can keep track of where your money is going. You must also make informed decisions regarding costs and savings and plan for retirement.

Plan For Your Retirement

The savings aspect can be divided into two phases when discussing financial wellness. You have short-term savings for emergencies or unforeseen events and long-term planning for retirement.

Taking the initiative and not solely relying on Social Security to fund your retirement is essential. It is only sometimes a guaranteed source, as it may face changes or reductions in the future. It’s crucial to plan to maintain your standard of living during retirement.

A variety of resources are available to help with retirement planning. Online financial planning calculators and human financial planners can provide guidance.

Depending on your age and retirement goals, the level of aggressiveness in your investment strategy may vary. Starting early allows for a longer planning horizon and potentially more aggressive investment options with higher interest yields.

However, knowing that higher returns may come with higher risks and potential losses is essential. Consider how much you would like to have in retirement, and the lifestyle you desire.

401k Plan

Typically, your workplace offers the 401k plan. Your employer may match your contributions or contribute up to a certain amount on your behalf.

This plan does not intend to be a savings account. For instance, the human resources department permits employees to take out multiple 401K loans simultaneously.

However, this practice is risky because a 401k is for retirement savings, not loans. Considering the market fluctuations, it’s crucial to contribute to your 401k for the long term.

In the event of a potential recession or job loss, your 401k does not disappear. The money you’ve contributed to your 401k is still in an account. If you had a 401k with a previous employer, you may have an account somewhere.

Individual Retirement Account (IRA)

Another type of retirement plan is an Individual Retirement Account (IRA). This includes options like a Roth IRA, retirement income funds, and Universal plans.

These retirement accounts offer distinct tax benefits and suitability depending on age and risk comfort. It is advisable to consult with a retirement financial planner to determine which plan is best for your needs.

It is also essential to recognize that banks are limited in their products. While some banks offer IRAs, only a few of them provide 401ks.

Your bank can provide guidance based on their products, but it’s best to consult a financial planner. Maintaining financial wellness also involves understanding various economic challenges you may face and how to address them.

Understanding Loans & Financial Challenges

There are other ways people consider to make ends meet, such as loans, but these may not be the most advantageous options.

When defaulting on loans, it means not abiding by the terms specified in the loan contract. Being ten days late with a payment or not making a payment for three months defines it.

In such cases, the lender or bank can pursue payment. This may involve turning the matter over to collections. It may even take legal action to collect funds, such as levying a bank account after obtaining a judgment.

If loans are in collection status, negotiating a payment arrangement or settling the debt for a lower amount may be possible. Settlements usually occur when the debt is in collection status.

However, the forgiven amount may be subject to taxation. If the financial situation becomes unmanageable, seek advice from a bankruptcy attorney. Filing for bankruptcy might bail you out, and it’s better than people say, but it’s an option.

Bankruptcy & Mortgages

Filing for bankruptcy usually won’t change the mortgage terms, but banks often propose loan modifications afterward. These modifications can lower payments or interest rates, so reviewing the terms is essential.

Property value plays a role in these proposals. In bankruptcy, it’s possible to eliminate a second mortgage if the home value is lower than the first mortgage balance.

From 2008 to 2010, many eliminated their second mortgages. Falling behind on mortgage payments can be resolved through Chapter 13 bankruptcy. This involves creating a repayment plan that lets people keep their assets while paying off debts over three to five years.

This allows payment catch-up with zero percent interest over up to five years. Exploring all options and consulting a bankruptcy attorney for legal advice is essential.

Second Mortgages

Taking out a second mortgage on your home is an option to consider. It requires home ownership and sufficient equity in the property. The loan balance must be less than the property’s value.

Second mortgages or home equity lines of credit, or HELOCs, allow you to borrow against your home, similar to another mortgage. The interest rates for second mortgages are typically lower than personal loans or credit cards.

However, the Federal Reserve has recently raised interest rates to approximately 6.5%. This is higher than the previous rate of roughly 2.5%.

While a second mortgage may be cheaper, it’s generally best to avoid taking one out to pay off other loans or debts. Doing so could lead to accumulating more debt and credit card balances.

Unexpected Healthcare Costs

In economic uncertainty, you may wonder whether you can remain on your employer’s health insurance. The answer is yes, through a program known as COBRA (Consolidated Omnibus Budget Reconciliation Act).

COBRA allows you to retain the same health insurance coverage you had while employed for a specified period, typically six months to one year. However, COBRA coverage can be costly.

Maintaining health insurance coverage is crucial despite the expense, particularly for families with specific healthcare needs. Seeking alternative coverage options during this period can be challenging, making COBRA an opportunity worth considering.

Prioritizing continuous health insurance coverage is essential to protect against unforeseen medical expenses.

Interest-Bearing Bank Accounts

Contrary to the notion that interest-bearing bank accounts are outdated, they are still prevalent today. While some accounts may require a minimum balance to earn interest, many options exist for accounts with low balances.

It is advisable to proactively contribute to a savings account, continually adding to the balance. Certificates of deposit (CDs) are another avenue to explore. You can earn higher interest rates by depositing a specific amount into a CD.

However, the deposited funds are inaccessible for a designated period, typically six months, one year, or even longer. Although the interest earned is subject to taxation, it is generally a nominal amount.

It is wise to consider diversifying savings into different types of accounts. This will provide immediate accessibility for emergencies while also benefiting from interest accrual.

Legal assistance is available if you are dealing with creditor phone calls or a pile of bills that cause your anxiety. You can get in touch with the team at Austin Bankruptcy Lawyers.

Conclusion

Financial wellness requires proactive planning and preparation, especially in uncertain economic times. You can establish a solid foundation for your financial well-being. Practice budgeting, prioritizing savings, eliminating debt, and planning for retirement. Seek guidance from financial advisors and attorneys when necessary.

They can provide valuable insights tailored to your unique circumstances. By taking control of your finances and implementing these strategies, you can navigate the financial challenges that may arise in 2023 and beyond. Remember, your financial wellness is within reach with careful planning, prudent decision-making, and a commitment to your long-term goals.