No use looking back at mistakes made. You can’t undo them and must live with the consequences. But the New Year presents us with a clean slate, a chance to start over with better money habits and smarter decisions. Here are some practical things to consider.
- Accept the bull market. It IS a bull market, no matter how unbelievable – and no matter what your political persuasion. And you should be participating to some extent. But to what extent? That depends on your risk tolerance, your situation in life. If all you have saved is “just enough” to get you through the foreseeable future, then stocks will be a very small portion of your financial plan. But don’t forswear the stock market just because you’ve missed out on earlier gains – or because you had losses in the past.
- Anticipate higher interest rates. It’s not just the Fed that will set rates in 2018. The market will take over. With low unemployment and lower corporate tax rates, at least some of the tax cut will spill over into economic growth. The Fed is pulling back on the money supply at the same time. The result is inevitable: higher interest rates. How will that impact your own budget – especially if you have credit card debt or a home equity loan?
- Understand the dangers of debt. The new tax bill declared war on debt, both directly and indirectly. There will be limitations on deductions for mortgage interest. But the real war on debt comes as an attack on states and cities that have high property taxes and income taxes to fund their spending. Now, their citizens can no longer deduct those taxes against ordinary income, tempering their impact. There will be consequences. Where do you want to live?
- Confront student loans. Speaking of debt, student loans now far outpace credit card debt -- and these loans impact both graduates and parents. It’s imperative to recognize the burden and make every effort to reduce it, before it impacts the parents’ retirement and the student’s future. If you have a job, consider refinancing private student loans – before rates rise again. Think about ways to cut costs by moving back home and using the savings to pay down debt. This problem is only going to get bigger as interest piles up, so it’s essential to discuss it now and make a plan.
- Identify the real risks. The obvious risks stand out as a warning. The stock market could tumble. Interest rates could rise. But many risks are hidden – not to be revealed until it’s almost too late to escape them. Take a closer look at the risks you haven’t considered. Some of those include the risks that your life insurance is a ticking time bomb, with not enough money inside it to pay future premiums, causing it to require higher payments when you can least afford them. Or you might have invested in some crowd-funded real estate schemes that work when rates are low and the economy is growing – but collapse when bankers won’t fund take-out loans at affordable rates in the future.
- Study the big picture. Just because you don’t like the politics that made it happen, America is likely to grow more strongly in the year ahead because of the huge cut in the corporate tax rate. And wages are likely to increase, since there is low unemployment. So if you’re out of the workforce – even if you’ve been on the sidelines for a few years – this is the time to get going again on your job hunt. Don’t give up. Suddenly, the knowledge and experience of baby boomers will be back in demand.
- Be optimistic. Change your attitude. As my grandmother used to say: “What’s done is done.” We live in the present and must plan for the future based on what makes objective sense today. When it comes to making financial decisions, anger and resentment do not lead to good outcomes.
Take a deep breath. You – and America – have lived through many ups and downs. And there will be more in the future. But undeniably, the trend for America is upward over the long run. We will all come out better in the end if we make our financial decisions accordingly. And that’s The Savage Truth.