2024 Wealth Management Roadmap for Spending and to Maximize Investment Growth

2024 Wealth Management Roadmap

Expect the resiliency seen last year to start slowing. The word "recession" is creeping into conversations, but there's no need to worry as economists expect the recession to be "very short" and "shallow" if it happens. Those are critical descriptors to keep in mind. The 2024 wealth management roadmap can help you adjust your short-term spending and maximize the potential for investment growth.

Start by asking yourself these questions:

• What's the status of your credit card spending?
• What's your tolerance for economic instability?
• What's your confidence in the economy?

Those answers can help you adjust your spending or save more with a high-interest savings account.

If you're buying a house, the financial outlook examines when rates may come down and quickly looks at the financial outlook beyond 2024.

What's the status of your credit card spending?

It's been an economic rollercoaster the last few years. During the pandemic, people didn't spend. Once we started coming out of it, travel and spending surged. That increased spending and rising inflation appear to be catching up to us.

The economy has been resilient despite what economists call "headwinds" like interest rates and inflation. But things may shift slightly in 2024.

We went from historic lows for late credit card payments and default rates during the pandemic to historic high balances in 2023.

Credit card balances are now over $1 trillion in 2024, and still edging up, according to the Federal Reserve Bank of New York's Center for Microeconomic Data.

Here's what's increasing:

• Credit card usage
• Credit card balances
• Credit card debt

Not surprisingly, mortgage debt accounts for the largest debt category. With that, you look at how many people are struggling to pay these monthly fees. The 90-day delinquency rates also rose in Q2 2024.

The substantial savings consumers built during the pandemic are shrinking so fast economists estimate consumers could run out of those savings by the first quarter of 2024.

While these national statistics shed light on what to expect, use the information to guide your decisions but ultimately make an individualized wealth management roadmap.

Think about where you are financially, given day-to-day expenses.

• Are you paying off your credit card balances, or do you have mounting debt?
• Are you barely making ends meet monthly because of rising costs for essentials like food and gas?
• Have you made enough adjustments to your budget to compensate for the increased costs?

The end of the year and the beginning of a new year is a great time to evaluate your budget this year and make changes to navigate the unexpected road ahead in 2024.

What's your tolerance for economic instability?

Once you evaluate your spending and budget, consider your financial mindset and "risk tolerance." If you’ve talked to your financial advisor lately, you’ve probably heard them mention your tolerance.

• How will you feel if the market drops?
• Will you run to look at your investment statements and make changes, or will you stay the course?

It's not just about your risk mindset, but how much can you financially tolerate? That depends on your long-term goals.

• Do you want to retire early?
• How many years are you away are you from retirement?
• How much wealth do you have accumulated in retirement accounts?
• Do you have a rainy-day fund?
• How secure is your job?

If you're close to retirement, your risk tolerance will likely be lower than if you're 10-15 years out.

What’s your confidence in the economy?

Nationally, consumer confidence is mixed in 2024. It's increasing slightly, but not enough to make up for what's happened the last few years, according to The Conference Board, a nonprofit think tank that provides futuristic insights.

Consumers said they were concerned with rising prices, specifically gas and groceries. There's also concern about higher interest rates and the instability in the world with the ongoing conflicts.

Again, weigh these national insights, but consider your confidence.

• What's your confidence in the market and your financial situation?
• Can you weather a storm, or has the wiggle room in your budget shrunk as costs have increased?
• Are you still spending, or have you cut back?

If your consumer confidence drops, your risk tolerance may drop too. Talk about it with your financial advisor.

Unlike some professionals, you don't typically pay a financial advisor every time you call them for advice. If you have a fee-only advisor who has transparent fees, you pay based on the amount of your investments.

Other financial advisors earn commissions. Understand which advisor you have and how they get paid.

Either way, tap into their knowledge and think about your risk tolerance for 2024.

Will there be a recession in 2024?

That's the million-dollar question and has been for some time. It didn’t happen in 2023, but there are increasing concerns about an impending recession although concerns remain below their peak in 2023.

The Conference Board forecast shows a "very short and shallow recession" in 2024. Why?

• High inflation
• High-interest rates
• Dwindling pandemic savings
• Rising consumer debt
• Lower government spending
• Mandatory student loan repayments resume

While the economy has withstood economic changes so far, economics don't think the resiliency will last much longer.

Remember, the recession should be "very short."

In the short term, there is something you can do to take financial advantage of our current situation and earn some additional money.

Interest rates in 2024

Adjusting your budget and spending in the near term is important, even though the recession should be "very short."

By the third quarter of 2024, interest rates are expected to drop.

So, how high will they go? If a "very short" recession happens, rates will come down. That's expected in late 2024.

But, they won't drop to the 3% range.

Many experts predict rates will be in the 6% range. That was the prediction, and as of August 2024, interest rates are down to 6.59%.

Because that drop is expected so late in the year, the average interest rate in 2024 will be slightly higher overall at 6.9% in 2024 compared to 6.8% in 2023.

What lower interest rates mean for buying a home in 2024

Your home is typically your most significant financial liability until you pay off your mortgage.

Rising interest rates have many buyers delaying their home purchase.

A 1 or 2% interest rate difference can put thousands of dollars more cash in a home buyer's pocket.

For example, if you buy a $300,000 home in the Kansas City area and put 20% down, you'll pay $89,823 at a 7.625% interest rate.

If rates drop to 6.5%, interest is just $75,684.

So, that's a savings of $13,599 in five years with that interest rate drop of just over 1%.

Waiting until rates drop could be advantageous if prices don’t go up. That may vary depending on where you live.

On the coast, the housing market has risen steadily. It's more moderate in the Midwest, like Kansas City, but prices are up everywhere.

A House Buyers of America report shows home prices may rise 3-4% next year but the National Association of Realtors only forecasts an increase of .7% in 2024, putting the average cost of a home at $389,500.

If you find the home of your dreams and rates are still high, it’s not the end of the world. With rates predicted to drop, you can always refinance.

Take advantage of high-interest rates with a high-interest savings account

If you’re not in the market for a home, these high rates can mean extra cash! Cha-ching!

With interest rates expected to remain in the 5% range and above throughout 2024, consider a high-interest savings account.

Thinking about one will also help you manage your spending so you can focus on saving! It's never too late to start.

So, look at what your savings accounts yield now. If it's in the 1% range, it's time to shop.

According to NerdWallet, high-interest savings accounts returned 4.5% and higher in November 2023. You can always check the latest rates on NerdWallet or Bankrate.

Most banks allow you to transfer money in and out of the account. Money is typically available within a few days. So, money may not be as fluid as a local bank, but it's available relatively quickly.

Think of these accounts as long-term savings rather than money you might need to pay monthly bills.

Check the terms and conditions of each bank to understand how quickly your money will be available and check to see if there's a minimum investment amount to earn high interest.

Cash in on these favorable rates while they last.

Even though rates are expected to come down in the second half of 2024, they won't drop that much. Rates will still be high throughout much of 2024.

Plus, a high-interest savings account will force you to change your spending habits, giving you more money to save.

Change spending habits before it's too late

If you haven't changed your spending habits yet, do it now!

Take a hard look at your budget and identify areas where you spend too much. Food costs significantly more, so you may have to cut out other expenses.

Please don't wait until it's too late. You don't want to accrue credit card debt and be part of the national uptick in debt.

Plus, that savings account will help you plan for the unexpected, like a job loss, medical bills, continued rising costs, or another financial hardship.

If it's difficult to cut back, try mindful spending. It’s a way to not spend so much money by tapping into the power of your mind. Mindful may have you thinking of financial Zen, but don’t worry, this doesn’t require a yoga mat.

There are other habits you can incorporate into your daily life. Try some of these mindful strategies.

You can also prioritize where you spend your money with a self-help money management technique that engages your senses.

Visualize your spending. If you’re planning a vacation, imagine yourself on that vacation. What are you feeling, seeing, and tasting?

Is that joy that you get worth the cost of paying for that vacation? These techniques can help you change spending habits.

Re-evaluate financial goals and wealth management plan

The new year is always a good time to re-evaluate your wealth management plan, including short-term and long-term financial goals.

Are you considering retiring early, making a big purchase like a recreational vehicle (RV), or switching jobs? Taking a federal job or leaving a federal job may shift your financial investment vehicles.

Sit down and think about your financial goals:

• Where are you financially?
• What costs can you control?
• How can you adjust your savings?
• Are you reaching long-term financial goals?
• Should you re-balance your investments?

Review your year-end statements to see how you did and talk with your financial advisor about strategies for 2024 based on the economic forecasts.

Look at your 401(k) and other investment accounts. Is it time to rebalance it? It depends on how far away from your target allocation you are, plus your risk tolerance.

If you are more conservative, it could make sense to rebalance back to your target if you are 5% from your target. If you are more aggressive, it could be a good idea to rebalance if you are 10% or more from your target.

While it's tempting to cut back on the money you put in your 401(k) or Thrift Savings Plan, you should stay the course whenever possible and try to cut other places first.

Talk to your advisor so you can make a wise financial choice.

What could the 2025 financial outlook look like?

Now that you have a wealth management roadmap for 2024, what might the financial outlook be beyond that? If you're a homebuyer who doesn’t have to buy now, 2025 may be the year you have your aspirations set on.

With interest rates expected to drop in late 2024, the following year may be the time to buy a home and refinance if you bought in the last few years.

Bankrate has a mortgage refinance break-even calculator to help you determine how long it will take to pay back the refinancing costs. Remember, your mortgage is a long-term investment, so even if it takes 2 or 3 years to re-coup the refinancing fees, you'll save in the long term.

You may not need that tool just yet, but keep it handy as you consider short and long-term financial goals.

Also, 2024 is a Presidential Election year. So, economists will be watching that, too.

Remember, your financial advisor can help you navigate these market changes and help you chart the best wealth management roadmap for your situation.