Americans continue to feel the pinch in their wallets when paying high prices for necessities like food, gas and housing. However, the Bureau of Labor Statistics.after peaking at . The Federal Reserve's aggressive interest rate hike schedule to curb inflation appears to be working, with the year-over-year rate dropping to 3.2% in October, according to the
Still, interest rates remain elevated, which could factor into your year-end financial planning. For example, saving in high-yield deposit accounts and paying down high-interest debt could benefit your personal bottom line.
What other smart changes should you make going forward? Below, we'll break down five financial moves to consider—and another five to avoid—to improve your financial footing going forward.
5 financial moves to make in 2024
Here are five financial moves you should strongly consider making in the new year.
Open a CD
are a reliable and low-risk way to grow your savings. With CDs, you agree to keep your money in the account for a specific period, from three months to five years, in exchange for an interest rate generally higher than traditional savings accounts. And with interest rates still high, you can earn a solid on your money, with rates up to . If you have money in a regular savings account you don't need to access soon, you may grow your savings faster by moving it into a CD account. However, if you withdraw money before your account's maturity date, you could incur an .
Open a high-yield savings account
As its name implies,earn strong yields, especially compared to traditional savings accounts. The FDIC's latest data shows the at a paltry 0.46%. However, you can typically earn a substantially higher rate with a high-yield savings account. The best accounts available in November range from around 4.30% to 4.10% on a $1,000 deposit. If you're earning less than 1% in a traditional savings account, transferring your funds into a high-yield savings account could make sense.
"High-yield savings accounts are best for emergency savings and short-term savings goals," says Brittany Pederson, the director of deposit and payment operations at Georgia's Own Credit Union. As Peterson points out, you can also access your money anytime without an early withdrawal penalty. "If you need your savings in the near future, whether for something planned or unexpected, you have a much greater ability to access it in a high-yield savings account."
Pay down high-interest credit cards
Paying down high-interest credit card debt is another smart financial move in 2024. Remember, high interest rates compound your debt quickly and make it harder to pay off. By wiping out your debt, you'll free up more money for your savings, retirement contributions or other investments. Acan help by giving you an interest-free period of up to 21 months, allowing you to pay down the principal balance faster. can also be a valuable debt reduction tool. These personal loans usually come with fixed interest rates lower than most credit card rates.
Get life insurance to protect loved ones
can ensure your loved ones aren't left with financial burdens when you pass. It can be especially valuable if you have dependents, including children, non-working spouses or aging parents. Life insurance can replace lost income and cover living expenses to help your dependents avoid a financial catastrophe. While is typically less expensive and can help cover your bases, accumulate cash value over time and provide an extra financial resource later in life.
Build an emergency fund
Experts often recommend building ancovering three to six months of living expenses. This rainy day fund can provide you with a financial safety net you can draw from if you unexpectedly lose your income, incur an unforeseen medical expense or face another unplanned financial burden. Having adequate cash available can help you address a financial crisis without disrupting your budget or resorting to high-interest debt like credit cards to meet your costs.
5 financial moves to avoid in 2024
And here are some steps you should try to avoid making next year.
Using your credit card
According to the Federal Reserve, the average credit card interest rate is 22.77% and many card issuers charge up to 30% interest or more. Of course, you can avoid paying interest by paying your balance in full by your due date. However, if you tend to make minimum payments and carry a balance from month to month, it's best not to use your credit card for non-essential spending.
Applying for high-interest debt
High-interest credit cards and loans, including payday loans, can quickly become a burden. For example, according to the Consumer Financial Protection Bureau (CFPB), the fee structure for payday loans often equates to an annual percentage rate (APR) of nearly 400% for a two-week loan, making them extremely challenging to repay. The compounding interest on high-interest debt could result in paying significantly more than you borrowed and lead to a cycle of debt that's hard to escape.
Not maxing out your 401(k)
"I believe the worst financial move people can make in 2024 is not taking full advantage of their employers' match on their retirement plan," says Lawrence Sprung, CFP, founder of Mitlin Financial and author. "There are not many times in life that you can receive 'free' money, but this is one of them." If possible, contribute up to your employer match each paycheck. For example, if your employer offers a 3% match, contribute at least that amount per paycheck. Aim to gradually increase your contributions, ideally to 10-20% of your paycheck if possible.
Being complacent with money issues
In tough financial times, it's easy to get discouraged. But don't ignore any financial issues, advises Marcus Holzberg, CFP at Holzberg Wealth Management. "I would say don't let multiple problems you have with your financial life compound, or say, 'It'll sort itself out.' If you have questions or concerns about your financial life, make 2024 the year where you get financially organized and figure out the issues you may be having," says Holzberg.
Putting all your financial resources into a single investment or sector
Putting all your financial eggs into one basket can be risky and lead to substantial losses. For example, when the dot-com bubble burst in the early 2000s, many investors heavily invested in tech stocks saw their portfolios plummet when the Nasdaq Composite dropped 78% in 30 months. That's why most financial advisors recommend diversifying your portfolio with a mix of stocks, bonds, real estate and other assets. , typically no more than 5% to 10%, can also help to stabilize your portfolio.
The bottom line
With the new year fast approaching, now is the perfect time to review your financial situation and set goals for 2024. Consulting your tax accountant or financial advisor can help you minimize taxes and ensure any moves you're considering fit within your overall financial plan and advance you toward your goals.
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