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Friday November 17th 2017

Mixed News: U.S. Economy Still Up and Down

In the aftermath of the subprime mortgage crisis, the economy quickly fell into recession as credit markets tightened up considerably due to fears of continued losses. Despite the efforts of government policy makers to revive the gasping economy, things remain in a precarious state. The Treasury Department arranged for a bailout for many of the largest investment banks, most of whom were holding on to billions of worthless assets. Congress agreed to a $800 billion stimulus package in an attempt to boost overall demand throughout the economy. In addition, the Federal Reserve is already engaging in its second round of quantitative easing, buying up large amounts of Treasury bonds to keep short-term interest rates near zero percent. It’s begging to feel a bit like an amusement park ride.

Officially, the American economy has snapped out of the recession. GDP growth in the first quarter was 1.8 percent, a not very strong number but an increasing one nonetheless. Overall, the recovery has been very anemic. Indeed, there are real fears that the economy could slip into a double-dip recession unless appropriate measures are taken. Of course, there have been a few positive signs in the economy over the past year. The stock market did very well in 2010; the S&P 500 returned 15 percent last year. Many businesses appear to be recovering from the 2008 recession, although they seem reluctant to reinvest those profits given the precarious state of the economy. Unemployment has been trending downward over the past few months, but few economists would call such job growth numbers encouraging.

Unfortunately, there seems to be as many negative numbers as positive ones. Hourly wage growth grew at only two percent last year. And this has been part of a much longer trend of stagnant wage growth over the past thirty years, especially for those in the lower-half of the income distribution. It is true that this is at least partially due to increases in health care expenditures made by employers on behalf of employees, but there has been a disconnect between productivity and wages. As long as unemployment remains so high, there will be little upward pressure on wages.

The even more discouraging fact is that unemployment is probably even higher than the official rate reported by the government. Once you account for workers who are underemployed, such as full-time workers only working part-time or workers in jobs well below their skill set, and workers who have dropped out of the job market completely, the unemployment rate is closer to 15 percent.

As wages have stagnated or fallen, many workers are seeing their standard of living fall thanks to rising prices in many consumer staples like gasoline and food. Indeed, gasoline is quickly reaching an average of $4 a gallon, further reducing available disposable income. Overall, food prices are expected to rise four percent this year, although many important foodstuffs will increase in price even more than that.

On top of all of this, the government is currently operating under a $1.6 trillion budget deficit. As the debate in Washington turns from economic stimulus to debt reduction, the government may inadvertently squash a nascent recovery by reducing aggregate demand through broad-based spending cuts. Indeed, some economists have argued that even more spending may be necessary to boost the economy suffering under a large amount of excess capacity.

Unfortunately, the American economy is suffering from a variety of woes and it appears that the government has already exhausted most of its standard policy prescriptions. Interest rates are as low as they are going to get and government spending is not likely to get any higher. In the end, we can likely expect a very slow recovery into the foreseeable future.


So You Set A Budget…Now What?

Setting a budget is an important financial responsibility every individual should do. A list of total household income and expenses should be calculated and written down in order to get the most accurate picture of a person’s financial lifestyle.

Review and Reevaluate Budget Regularly

Once the initial task of compiling a budget is accomplished, it’s essential to review it several times for accuracy. Check all of the individual items in both the expenditure and income sources categories. See if they’re truthful and be honest. Then recalculate the grand totals several times as well to be certain no unintentional errors were made when using the calculator. Once this is done, and the budget feels totally accurate and honest, then it’s time to put the budget away for a short time. But it then has to be revisited on a regular basis. Every month is a great idea because changes in expenses and income can happen in any given monthly period.

Stick to the Budget

It’s essential to maintain adherence to the household budget. Don’t be tempted to overspend in any expenditure category that was itemized on the budget. If $200 was the average estimated utility bill for each month, then make sure to keep electrical costs down so that it’s only $200 again the next month and not more. Don’t deviate with any other category as well. Don’t feel that more has to be paid on the credit cards or that it’s necessary to double up on the car payment just to try to get ahead of the game financially. Stick to the maximum allowable monthly expenses and also try to maintain the same income levels as originally calculated in the budget.

When a person ignores his once carefully thought out budget. it’s inevitable that problems will arise. There won’t be enough money at the end of the month to pay all bills on time and maintain a strong credit history. Or expenses will get out of hand for unnecessary materialistic temptations that will prevent the person to be able to save or invest the amount budgeted for at each monthly interval. Discipline is the key.

Set Short and Long Term Monetary Goals

One of the best effects of setting up an intelligent and accurate budget is that individuals can gain psychological satisfaction by planning short and long term monetary goals. If $250 a month is dedicated to be saved out of one’s gross monthly income, then a short term goal can be to save a few thousand dollars as a down payment on a car that would help the household out. A longer term goal with this same amount of monthly savings can be to accumulate enough money to help pay for college expenses down the road.

These goals can come right out of an accurate and steadfast budget, and it makes a person feel completely in financial control of his lifestyle instead of living in constant fear about where his next dollar will come from and how he’ll end up never paying for substantial purchases and investments in the future.

It’s not at all difficult to accomplish these tasks when setting an intelligent budget. All it takes is a little bit of determination, planning, discipline, and awareness of an individual’s overall financial picture at a given point in time.


Three Core Principles for Smart Money Management

A good money management plan will keep you solvent even in the most difficult financial times. Taking care of your money is something you have to do on a daily basis. Just like dieting, it requires a little bit of discipline and planning to get it right. But a good financial plan can become a normal part of your life, the same way a healthy diet and exercise can become regular parts of your days. Begin with these three core principles and you’ll find that good money management is easier than it sounds.

Live Within Your Means

It sounds simple, but this can be the toughest part of money management. It all boils down to only spending as much money as you make. Credit cards and monthly payment plans are the fastest way to get in over your head with interest rates and revolving balances. Credit cards are good ways to increase your credit rating, and they are good for emergencies, but they have to be used carefully. Never charge an item that you wouldn’t be able to pay off completely within a month, and then really do pay them off when the bill comes in.

Some interest rates are unavoidable. Mortgages and car payments are large enough that can rarely be paid off all at once. You can be careful to shop around for the lowest interest rates and the shortest loans that you can afford. Buying your own home is not always a sound investment depending on where you live. Look into all of your options before you jump into a 30 year mortgage.

Keep Your Money Working for You

Having a savings account is an excellent beginning toward financial stability. Every bank offers a different interest rate for their different types of savings accounts. Find the account that will give you the best return on your investment. Over time, the difference between a 1% return and a 1.5% return can become substantial.

It is also possible to earn money as you spend it. Many credit cards today offer cash back programs that will give you money each time you use the cards. As long as you remember to keep the credit card spending within your budget, you can build a nice stash of money by taking advantage of these reward programs. If you don’t find a program that offers cash back, you may be able to find one that gives you points toward travel or other purchases that will save you money in the long run.

Be Ready for Anything

Life isn’t always predictable. Keeping an emergency fund available for those unexpected expenses will save you a great deal of money and heartburn. Most economists recommend that you keep an emergency fund that is equal to your salary for three months of work. That way if you lose your job or are unable to work for some reason, you will still be able to make all of your payments on time until you get things all sorted out.


Preparing Your Loved Ones for the Worst

In most households, one spouse takes care of the finances and the extent of their discussion about their personal finances with their spouse are limited to occasional “can we afford this” questions and answers. Many couples prefer to conduct finances this way in order to stave off potential arguments about their finances and because some spouses just do not care to be concerned with the ins and outs of their family’s finances. However, should the financial guru of the family pass unexpectedly, the other spouse can be left in financial chaos.

It’s a Tough Topic

Thinking of unexpectedly passing can be a hard thought to swallow, but you should not let fear stop you from preparing your spouse in the event of your death. Being on the financial side of the relationship, you need to make sure your spouse at least understands personal finance basics in the case of your unexpected demise and what your family’s financial standing entails.

This can be accomplished a variety of different ways, but there are two popular choices that can get the job done. The first would be to sit down and get your spouse involved in your family’s finances. Share every financial decision and all pertinent information in order to ensure they know everything that is going on. Should he or she not wish to do this, you can decide to write a letter with all the financial he or she would need in order to continue without you.

Gather All Financial Information in One Place

Whether you decide to talk things out or write a letter, you need to make sure your spouse understands and has all the knowledge he or she needs. This includes account numbers and any information he or she could possibly need in order to access all your family’s investments and assets.

Your spouse will need a list of all accounts, and who is assisting in your estate planning, insurance agents, mortgage officers, and any other important people that are a part of your family’s financial security; any safe deposit boxes and how to access them; and finally, a list of all expenses including mortgages, phone bills, car payments, etc. Your spouse will need to know every possible detail. Include anything you think they could possibly ever need to know.

Keep it Up to Date

After you have everything in order, you need to make sure you keep it all up to date. This is especially important if you choose to leave everything in a letter instead of telling your spouse about everything you decide to do. Finances change over time, accounts get opened and closed every day, agents get fired and new agents get hired, a list of old account numbers and contacts helps no one. In such a difficult time, you do not want to leave you family any worse than they already will be. The death of a spouse is hard enough. Don’t leave your family open to financial insecurity as well.


Five Financial Imperatives for Young Adults

The way you handle your money when you are younger can have a dramatic impact on your quality of life as you get older. Here are five financial lessons you must learn if you are to maintain your financial security in the future.

Write it All Down

The first step in organizing your finances is to write everything out. Make a list of the things that you spend money on. Include everything that you know you will buy during a normal month, such as your utility bills, car payments, house payments or rent, groceries, gasoline, and entertainment.

Don’t forget to include special expenditures that happen on an irregular basis, like car tag renewals or birthday presents. Once you have a complete list of what you spend, you can compare that to the amount of money that you earn.

Recognizing What You Want versus What You Need

If your spending habits exceed your earnings, you will need to make some changes to your budget. Look at the items you usually buy and determine if those items are things you really need or things you really want.

Keep the necessities, but cut back on the things that are not vital. You should always allow yourself a certain amount of money for entertainment, but make sure that it is an amount that you can comfortably afford.

Control Your Credit

Credit will be an important part of your financial life. A good credit rating can lead to better interest rates on loans for cars or mortgages, as well as better rates on auto and health insurance. Make sure you check your credit rating at least once every year to make sure it is accurate. You can keep your rating positive by paying debts in a timely manner.

Try to use credit cards sparingly. Remember that a credit card is really just a convenient bank loan. When you make a purchase using credit, make sure it is an amount that you can pay in full when your next credit card bill comes. Carrying a balance over several months accrues expensive interest payments that make your purchase much more expensive than it was originally.

Begin Retirement Investments Early

The earlier you begin saving money toward your retirement, the better your later years of life will be. It can seem strange to put money away for your senior years when you are just starting out in life, but you need all of that time to create a nest egg that will allow you to do what you want to do when you retire.

Remember that you are planning for a time when you will not work at all, which means that your savings will have to cover all of your expenses. On average, people are living 20 – 30 years after they retire, which means you need to save enough to pay for up to 30 years of life without a regular income.

Create a Safety Net

Unexpected things happen to everyone. Make sure you always keep some money in a savings account to help cover expenses when your car breaks down or you need to replace an appliance. Emergencies can cut deeply into your regular budget if you do not have any savings to help cover the costs.