How to Manage Money in Uncertain Times

At a time of rising prices, higher interest rates, and volatility in investment markets, it’s easy to feel confused and a bit uncertain about how events beyond your control could affect your life. The good news is that by focusing on your own money and future and considering a few basic steps, you can weatherproof your finances against unforeseen economic conditions.

The process starts by taking a close look at the total amount you spend every month, from regular, recurring expenses such as rent or mortgage, utilities, and insurance, to incidental expenses like entertainment and travel. With a clear picture of what you’re spending and how that compares to your income, you can start to find ways to strengthen your finances. You may find ways to reduce expenses without affecting your lifestyle, and put more money away for emergencies or long-term goals such as retirement.

This article and the related pieces in our series on how to manage your money in this time of economic uncertainty offers some straightforward ideas to help you get going. The best part is that gaining greater control of your finances won’t just help you during uncertain times. These steps could help your financial picture no matter what the future brings.

Getting a Handle on Debts

After years of extremely low interest rates, 2022 brought the sharpest rate increases in 40 years. The Federal Reserve, the U.S. central bank which sets the base rate from which most other interest rates are determined, says the increases are necessary to rein in high inflation. But the higher rates have made many kinds of borrowing more expensive, from buying a car to making everyday purchases using your credit cards.

By September 2022, average card rates topped 18%, their highest levels in 26 years. Along with rising interest rates, consumers are carrying higher balances on their credit cards: up 13% in the second quarter of 2022, compared with the previous year, according to Consumer Reports.

All of which means that now is a good time to get your debts under control. Start by listing all of your debts in order, from those carrying the highest interest rates to the lowest, suggests Equifax, the credit rating agency. Even for loans of similar size, higher rates can cost you considerably more in the long run. For example, a $10,000, five-year car loan charging 6% interest will increase your costs by more than $500 over a similar loan charging 4%, Equifax notes. Use your list as a guide: where you have the flexibility to do so, concentrate on paying off those higher-interest cards and loans first.

For more detailed guidance, check out our article on Strategies for Paying Down Debt.

If the number of debts you’re holding feels overwhelming, you might consider folding them into a single loan—a process known as debt consolidation. Consolidation could help you lower your overall interest rate and costs, with one monthly payment instead of many, according to the National Foundation for Credit Counseling. With interest rates possibly moving higher in the months to come, now may be a good time to lock in an attractive rate.

When consolidating credit cards, you’ll need to carefully compare interest rates to ensure you can actually lower your payments. Some cards may even offer a 0% APR for the first year or more, which could give you a head start on paying down your consolidated debt. You can also visit Fifth Third Bank’s Consolidating Debt Guide. Then, using our Debt Consolidation Calculator, you can enter your existing loans, interest rates, and other information to see how different types of consolidation loans could affect your payments.

Watch Expenses While Still Having Fun

A clear sense of what you’re spending on a daily basis could help you find ways to save cash, take on fewer debts, and adjust your spending without affecting the quality of your life. Sure, cutting small expenses would save money; but if it’s a ritual you cherish, with careful planning your budget may be able to maintain one or more small pleasures that help keep life fun.

Instead, you may find greater savings by reviewing some of your larger expenses, such as auto insurance. Is that policy you’ve been paying for years offering the best deal? The Insurance Information Institute suggests comparing rates from at least three separate companies. If your car’s value has dropped below 10 times the premium, it might make sense to drop your collision coverage, the organization suggests. If you’re buying a new car, check out insurance options before you buy: you may be able to reduce your premiums by buying a model with a great safety record, or with reduced likelihood of theft, both factors that may affect your insurance premium.

You could find similar savings in your homeowners insurance, or something as straightforward as cutting those monthly subscriptions for streaming channels or print publications you may rarely use (or even have forgotten you’re paying for). Also keep in mind that economic challenges sometimes offer opportunities to save. With many retailers facing a glut of inventory recently, scouting around for deals could seamlessly reduce your shopping bills around the holidays and beyond.

While rising energy costs may seem like a fact of life, you can take steps to reduce energy use and save money even as you help the environment. For example, simply locating and sealing off air leaks along your home’s baseboards, windows, plumbing fixtures and the like could slash your energy bills by up to 20%, the U.S. Department of Energy estimates. Even simple steps such as unplugging appliances or changing settings can add up.

A do-it-yourself home energy audit could help you quantify potential savings or, better yet, hire a professional to conduct a room-by-room energy physical. If your assessment reveals creaky old appliances are costing you a bundle, tax credits could help you upgrade. The federal Inflation Reduction Act of 2022 extended tax credits of up to $500 for residential energy efficient purchases such as heat pumps, air conditioning, and more, for the next 10 years.

Not all expenses are predictable, of course. An emergency fund can help protect you against large, unforeseen expenses such as a major car or home repair, or temporarily replace income in case of a job loss. This money could help you avoid having to borrow and take on new debt.

While there’s no hard and fast rule on how much money an emergency fund needs, some experts suggest working towards at least three to six months’ worth of expenses. More important than an exact number is a consistent and disciplined approach to saving. The U.S. Consumer Finance Protection Bureau recommends setting a specific goal and putting aside a certain amount of cash each week. Setting up regular, automatic transfers into an account like Fifth Third’s Momentum Savings can help.

Assess Your Income and Set Realistic Expectations

As you closely examine your debts and spending habits, you also find ways to incrementally increase your income. For example, if you have the time and inclination, you could consider supplementing your current pay by joining the estimated 16% of Americans who have earned extra money as part of the gig economy—from using a car to ferry ride share passengers or deliver restaurant meals, to performing household tasks on an as-needed basis. Fifth Third has partnered with the free Steady App to help you find a great gig job.

In some cases, you may also benefit from inflation adjustments from your employer or the government. For example, inflation and a tight labor market are pushing paychecks up, with salaries in 2023 projected to rise at their highest rates in more than 20 years, according to the Conference Board. In another study, nearly half of U.S. companies plan to increase the level of their pay increases. Meanwhile, rising interest rates, though challenging for borrowers, could help savers generate income from CDs and savings accounts, after years when near-zero rates produced little or no income.

The government, too, responds to inflation by adjusting tax brackets upwards—meaning taxpayers can earn more without necessarily being bumped to a higher tax rate. And, if you’re in or entering retirement, you may be one of the roughly 70 million Americans who will see an 8.7% cost-of-living adjustment (COLA) to Social Security benefits in 2023.

Longer-Term Planning

As you bring your daily financial picture into clearer focus, it’s a good idea to step back and consider your long-term goals, and what adjustments may be worth considering based on economic conditions.

For example, if you’re thinking about moving, you may be wondering whether it makes better financial sense to rent or buy right now. That can be a tough choice with so many conflicting forces in the economy. As inflation and home prices moved higher in 2022, so, too, did rents. In one August 2022 survey, 60% of renters said their rent had risen by more than 10% in the past year. Yet in the same survey, nearly 75% of people who were planning to change residences said their chances of buying a home had gone down, thanks to higher prices and higher mortgage rates.

The housing market started cooling in the second half of 2022, according to the National Association of Realtors. Yet while that could mean finding a better price for a house than you would have a year ago, rising interest rates have driven up the costs of a mortgage. Adjustable rate mortgages may be attractive because they often offer lower initial rates than fixed mortgages, the interest rate can rise in the future and cost more monthly.

In the end, the choice of whether to buy or rent will come down to your personal situation and needs, and a close examination of factors ranging from purchase price to interest rate to how long you’ll take the loan out for and what your insurance costs are. Online tools such as Fifth Third’s Rent-vs-Buy Calculator could help inform that decision.

Another long-term consideration, of course, is when, where, and how you plan to retire. No matter where you are in your career, saving in a tax-advantaged account such as a 401(k) or IRA is the best way to help ensure you’ll have the money you need for that day. Get into the savings habit by contributing regularly, and be sure to save at least enough to earn any matching contribution your employer offers.

The Fifth Third Bank Retirement Savings Calculator could help you determine where you stand relative to your goals, and what adjustments you might make. With the cost of living rising and returns on investments down, you may want to consider delaying retirement by a few years. This could enable you to meet current expenses from income while still contributing to your retirement plan and holding off collecting Social Security. Though you can start collecting at age 62, each year you hold off increases your monthly payments by 8%.

And no matter how pressing your current needs may seem, it’s best to avoid pausing your contributions, if you can, and, especially, to avoid borrowing prematurely from your savings. Pausing could stall your momentum. Meaning, removing money from your plan prior to age 59 ½ could not only set your savings back, you may be subject to penalties.

Keep in mind as well that economic conditions and financial markets are constantly changing. challenging times have been with us before, and history suggests that recovery follows. So, don’t forget to save time to enjoy yourself in the here and now. And keep in mind that the steps you take now to shape up your financial picture can hold you in good stead, whatever the future holds.