7 money moves for an improving economy
June 12, 2013
Things are looking up with the economy. So what are you going to do about it?
Housing prices are rising, and so is consumer confidence. The stock market has already made a strong run so far this year, and now interest rates are rising. Even the job market is looking up. These are all good things, but they may require some financial adjustments. Here are seven moves you should consider.
1. Pay down debts
People have a strange habit of reducing debt during recessions, and taking on more debt during economic expansions. This pattern has held true in the most recent cycle: Consumer credit outstanding declined in 2009, but has grown over the past couple of years.
It's understandable that optimism would make people more willing to borrow money while pessimism would make them more cautious, but it's also counterproductive. When times are good, you should have less need to borrow money, and that would leave you less burdened by debt obligations during the next downturn.
2. Rebuild emergency savings
If you had to tap into your reserves while times were tough, a stronger economy is the time to rebuild those reserves.
3. Adjust your retirement savings target
The two steps above can help you repair damage that was done when the economy was weak. Once the economy is strong again, you should also start looking toward the future. If you start getting pay raises, make sure a portion goes to increasing your regular retirement contributions.
4. Take a fresh look at the job market
Speaking of pay raises, workers were on the defensive when the job market was weak. Some had to take jobs below their qualifications, and most were not in a position to insist on strong raises. As the job market picks up though, you should take a fresh look at your opportunities. You might find there is a profitable move to be made, and at the very least you'll have a better sense of your value in the job market the next time you negotiate a pay raise.
5. Rebalance your portfolio
Even after taking a tumble on the last day of May, the S&P 500 was up more than 14 percent in the first five months of the year. That's good news if you own stocks, but it may mean the stock portion of your overall holdings has grown beyond your target allocation. You should periodically trim your stock holdings down to size anyway, but in particular this may make sense in the months ahead if rising interest rates make the alternatives more attractive.
6. Compare bank rates
Speaking of rising interest rates, as the market changes different banks may be ahead of the curve by being the first to offer higher rates. This is a good time to keep your eyes on the market for savings account rates.
7. Start lengthening CD maturities
If interest rates make a significant move higher, another action you should consider is to lengthen your CD maturities to lock in higher CD rates.
They say a rising tide floats all boats, and it is true that an improving economy should generally help your financial situation. However, a few key moves can help you get even more out of the good times -- and thus be better prepared for the next downturn.