Category: Blog List

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How Does the President Influence the Economy?

Although they often get blamed for it, the President alone does not control the economy during their term. That being said, they do have a part to play. The President of the United States plays a significant role in influencing the economy, although the extent of this influence can vary depending on several factors, including the president’s policy priorities, the current economic environment, and the level of cooperation from Congress. A President cannot pass laws on his or her own, and the economy as a whole is made up of many factors, coming from both within the US and worldwide. Here are some key ways in which the President can affect the economy:

1. Fiscal Policy

Taxation and Government Spending: The President can propose changes to tax policies and government spending. Congress has to then vote on and pass laws that support the proposals. These proposals can affect economic growth, employment, and inflation. For example, tax cuts can stimulate consumer spending and business investment, while increased government spending on infrastructure can create jobs and boost economic activity.

2. Budget Proposals

The President submits an annual budget proposal to Congress, outlining spending priorities and revenue projections. While Congress ultimately controls the budget, the President’s proposal sets the agenda and can influence legislative priorities.

3. Regulatory Policies

The President can influence the economy through regulatory actions, which can affect various industries. For example:

  • Environmental Regulations: Stricter environmental regulations can impact industries like energy and manufacturing.
  • Financial Regulations: Changes in financial regulations can affect banking, lending, and investment practices.
  • Labor Policies: Policies on minimum wage, labor rights, and workplace safety can influence employment and productivity.

4. Trade Policies

The President has significant authority over trade policy, including the negotiation of trade agreements and the imposition of tariffs. Trade policies can affect domestic industries, export markets, and consumer prices.

5. Executive Orders

The President can issue executive orders to implement policy changes without congressional approval. These orders can have broad economic implications, such as changing immigration policies that affect the labor market or altering federal procurement practices.

6. Economic Leadership and Confidence

The President’s rhetoric and leadership style can influence consumer and business confidence. Positive messaging can boost confidence and spending, while negative messaging can create uncertainty and caution in economic activities.

7. Appointment of Key Economic Officials

The President appoints key officials who shape economic policy, including:

  • Federal Reserve Chair: While the Federal Reserve operates independently, the President’s appointment of the Fed Chair can influence monetary policy, including interest rates and inflation control.
  • Treasury Secretary: The Treasury Secretary plays a crucial role in fiscal policy, financial regulation, and economic diplomacy.
  • Council of Economic Advisers (CEA): The CEA provides economic analysis and policy recommendations to the President.

8. Response to Economic Crises

In times of economic crisis, the President’s actions can have immediate and significant impacts. Examples include:

  • Stimulus Packages: During recessions or financial crises, the President can advocate for and implement economic stimulus measures to boost spending and investment.
  • Emergency Declarations: The President can declare emergencies that unlock federal resources and aid for economic recovery.

9. Foreign Policy and National Security

Foreign policy decisions can have economic repercussions, such as:

  • Sanctions: Imposing or lifting economic sanctions can impact international trade and investment.
  • Military Spending: Changes in defense budgets can influence economic sectors related to national security and defense.

10. Healthcare Policy

Healthcare policy can have broad economic impacts, including:

  • Insurance Coverage: Expanding or restricting access to healthcare insurance can affect labor market productivity and consumer spending.
  • Healthcare Costs: Policies aimed at controlling healthcare costs can influence household budgets and public finances.

Conclusion

The President’s influence on the economy is multifaceted and involves direct policy actions, regulatory changes, appointments of key officials, and responses to economic events. While the President’s power is not absolute and is often constrained by Congress, the judiciary, and external economic factors, presidential policies and decisions can have significant and lasting impacts on economic conditions and trends.

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Biden Vs Trump: Effects on the Economy

I asked ChatGPT in order to leave bias out of it as much as possible, what were Biden’s Vs Trump’s Effects on the Economy? This is what it said:

President Joe Biden‘s administration has implemented a variety of policies and initiatives that have influenced the U.S. economy since he took office in January 2021. Here are some key areas where President Biden has had an impact:

1. COVID-19 Response and Economic Recovery

  • American Rescue Plan Act (ARPA):
    • Signed into law: March 2021
    • Key Provisions: $1.9 trillion economic stimulus package, including direct payments to individuals, extended unemployment benefits, funding for vaccination efforts, and support for small businesses and state and local governments.
    • Impact: Helped boost consumer spending, supported job growth, and accelerated the economic recovery from the COVID-19 pandemic.

2. Infrastructure Investment

  • Infrastructure Investment and Jobs Act:
    • Signed into law: November 2021
    • Key Provisions: $1.2 trillion investment in infrastructure projects, including roads, bridges, public transit, broadband internet, and clean energy.
    • Impact: Expected to create jobs, improve public infrastructure, and enhance long-term economic competitiveness.

3. Climate and Energy Policy

  • Executive Orders and Legislative Actions:
    • Goals: Achieve net-zero greenhouse gas emissions by 2050, rejoin the Paris Agreement, promote clean energy technologies, and reduce reliance on fossil fuels.
    • Impact: Encouraged investment in renewable energy sectors, created jobs in green technology industries, and positioned the U.S. as a leader in global climate initiatives.

4. Tax Policy

  • Proposals and Legislative Changes:
    • Key Proposals: Increase corporate tax rates, raise taxes on high-income earners, and close tax loopholes.
    • Impact: Aimed at funding social programs and reducing the federal deficit. Potential implications for corporate investment and wealth distribution are under debate.

5. Social Spending and Healthcare

  • Build Back Better Framework:
    • Status: Passed the House but faced challenges in the Senate (as of late 2021 and early 2022).
    • Key Provisions: Proposals for expanded child tax credits, paid family leave, universal pre-K, affordable housing, and healthcare reforms.
    • Impact: Aimed at reducing income inequality, supporting working families, and improving healthcare access.

6. Labor and Employment Policy

  • Minimum Wage and Worker Protections:
    • Proposals: Increase the federal minimum wage to $15 per hour, strengthen labor unions, and enhance worker rights and protections.
    • Impact: Aimed at improving living standards for low-wage workers and addressing income inequality.

7. Trade Policy

  • Approach: Continuation and modification of some trade policies from the previous administration, with a focus on fair trade practices and domestic industry support.
    • Actions: Addressing supply chain issues, promoting American manufacturing, and engaging in strategic trade negotiations with key partners.
    • Impact: Mixed effects on different sectors, with some benefiting from protectionist measures and others facing challenges from ongoing trade disputes.

8. Education and Student Debt

  • Executive Actions and Proposals:
    • Actions: Extension of the student loan payment pause, proposals for student debt forgiveness, and increased funding for education and workforce training programs.
    • Impact: Aimed at alleviating the financial burden on borrowers and investing in human capital development.

9. Regulatory Policies

  • Financial Regulations:
    • Actions: Strengthening financial oversight and consumer protections, addressing systemic risks in the financial system.
    • Impact: Ensuring financial stability and protecting consumers, with potential effects on financial markets and institutions.

Economic Performance Indicators During Biden’s Presidency

  • GDP Growth: The U.S. economy rebounded strongly in 2021 with significant GDP growth, driven by fiscal stimulus, consumer spending, and business investment.
  • Unemployment Rate: The unemployment rate declined as the economy recovered from the pandemic, with millions of jobs regained.
  • Inflation: Inflation rates increased in 2021 and 2022 due to supply chain disruptions, increased consumer demand, and other factors. The administration’s policies aimed at addressing these issues included efforts to improve supply chains and reduce costs.

 

President Donald Trump’s economic policies, implemented during his tenure from January 2017 to January 2021, had a significant impact on the U.S. economy. Here are key areas where Trump influenced economic conditions, along with an analysis of the effects:

1. Tax Policy

  • Tax Cuts and Jobs Act (TCJA):
    • Signed into law: December 2017
    • Key Provisions: Reduced the corporate tax rate from 35% to 21%, lowered individual income tax rates, increased the standard deduction, and doubled the child tax credit. Benefits to individual taxpayers are set to expire in 2025
    • Impact: Boosted corporate profits, increased stock market valuations, and led to higher business investment. Critics argued it disproportionately benefited the wealthy and increased the federal deficit.

2. Deregulation

  • Executive Orders and Legislative Actions:
    • Actions: Rolled back numerous regulations across industries, including environmental protections, financial regulations (Dodd-Frank Act modifications), and labor rules.
    • Impact: Reduced compliance costs for businesses, potentially boosting economic activity and job creation. However, critics raised concerns about environmental degradation and risks to financial stability.

3. Trade Policies

  • Trade Wars and Tariffs:
    • Key Actions: Imposed tariffs on steel and aluminum imports, as well as on a wide range of Chinese goods, leading to retaliatory tariffs.
    • Impact: Aimed at protecting American industries and reducing trade deficits. While some sectors, like steel, saw short-term gains, others, particularly agriculture and manufacturing, faced increased costs and market disruptions.
  • USMCA (United States-Mexico-Canada Agreement):
    • Replaced: NAFTA (North American Free Trade Agreement)
    • Key Changes: Updated provisions on automotive rules of origin, labor rights, and digital trade.
    • Impact: Modernized trade relations in North America, with mixed reviews on its economic benefits compared to NAFTA.

4. Immigration Policies

  • Restrictions and Reforms:
    • Actions: Implemented stricter immigration policies, including travel bans, reduced refugee admissions, and increased enforcement.
    • Impact: Aimed at enhancing national security and protecting American jobs. Critics argued it reduced the labor force, particularly in industries reliant on immigrant labor, and harmed international relations.

5. Healthcare Policy

  • Affordable Care Act (ACA) Repeal Efforts:
    • Actions: Attempted to repeal and replace the ACA; succeeded in eliminating the individual mandate penalty.
    • Impact: Reduced federal healthcare spending but led to increased premiums for some and higher uninsured rates. Efforts to dismantle the ACA were largely unsuccessful.

6. COVID-19 Response

  • Economic Relief Measures:
    • Key Legislation: CARES Act (March 2020), providing $2.2 trillion in economic stimulus, including direct payments to individuals, expanded unemployment benefits, and small business loans (Paycheck Protection Program).
    • Impact: Provided crucial support to individuals and businesses during the pandemic, preventing a deeper economic downturn. However, the pandemic led to severe job losses and economic contraction.

7. Labor Market and Employment

  • Pre-Pandemic:
    • Job Growth: Continued job growth and low unemployment rates inherited from the previous administration. Policies aimed at reducing regulatory burdens and taxes were credited with supporting job creation.
    • Wages: Modest wage growth, with significant disparities across different sectors and regions.
  • Pandemic Impact:
    • Unemployment Surge: The COVID-19 pandemic caused unprecedented job losses, with unemployment peaking at 14.8% in April 2020 before gradually recovering.

8. Stock Market Performance

  • Bull Market: The stock market experienced significant gains during Trump’s tenure, partly driven by corporate tax cuts, deregulation, and favorable business conditions.
  • Volatility: Markets faced volatility due to trade tensions, political uncertainties, and the COVID-19 pandemic.

9. Federal Deficit and Debt

  • Increased Deficit: The TCJA, increased defense spending, and COVID-19 relief measures contributed to rising federal deficits and national debt.
  • Debt Levels: The national debt grew substantially, raising concerns about long-term fiscal sustainability.

Conclusion

President Trump’s economic policies had a mix of short-term and long-term effects:

  • Positive Impacts:
    • Stimulated corporate profits and investment through tax cuts and deregulation.
    • Boosted stock market performance.
    • Supported economic relief during the COVID-19 pandemic.
  • Negative Impacts:
    • Increased federal deficit and national debt.
    • Trade policies led to market disruptions and higher costs for some industries.
    • Stricter immigration policies potentially constrained labor supply in certain sectors.
    • Healthcare policy changes created uncertainty and increased costs for some individuals.

The overall assessment of Trump’s economic impact is complex, with benefits in some areas and challenges in others. The long-term effects of his policies continue to be debated and evaluated in the context of subsequent economic developments and policy changes.

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What is Inflation?

What is Inflation?

My dad used to tell me stories about how he would get a $0.25 allowance, and he could take his girlfriend to the movies, buy popcorn and drinks, and still have a nickel left over. He was talking about the 1960’s, in small town Pennsylvania. I don’t know if he was exaggerating or not, but I do know that prices have risen a lot since then. Wages have also gotten higher, but the way things sit at present, they have not kept up with the cost of day to day living. We have all felt the effects of these rising prices, as the same money we made for the last few years does not seem to be stretching as far. Groceries, gas, housing, and almost everything else all cost more. A dollar just doesn’t buy as much as it used to. That is called inflation.

It is a normal thing for prices and wages to increase over time. It is when the two do not rise proportionately that inflation starts gaining a lot of attention. It is caused by a massive number of factors, from social change to politics, to global pandemics, and it, in turn, affects almost everything. The cost of production goes up as the parts get harder to access, so prices go up. Wages go up, so people buy more, which makes companies think they can charge more, so prices go up. Interest rates were very low, so more people bought homes, until there weren’t very many homes to buy, so the price of homes started going up. The government raised interest rates, so less people could buy the few houses that are left, in hopes that inflation settles down. So far, it hasn’t made much of a dent in inflation, but now the banks are struggling.

Right now, everything is expensive. It doesn’t seem to matter how much money people are making, they are still feeling the pain of the increased cost of living. There is no easy fix, because there are too many factors at play on a global scale. It isn’t just one thing that causes it, and it isn’t just happening to one country. It could take years for things to balance out again.

In the meantime, we have to look for ways to stretch our hard earned dollars. Eat at home more. Hang out with friends at someone’s house, instead of going out. Don’t buy that new pair of shoes, or new car, until they are really needed. Put money in savings if you have extra at the end of the month, and take advantage of rising interest rates to earn money on your money. Try not to borrow money if you absolutely don’t have to, be it from credit cards or banks.

No one can see into the future, but if history is any indication, things won’t always be this volatile. Inflation will never disappear, but it will likely cool off, if we can just wait it out. Actually, not buying things and not borrowing money helps inflation settle down faster. So, let’s all work together, shall we?

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Passive Cash Flow using Peer to Peer investing

If you have ever wished to have more money at the end of the month, you are looking for cash flow. Traditional investing in 401k creates cash flow only in retirement, once you have hit the age that you are able to withdraw funds. The stock market only creates cash flow if you make a profit and withdraw that amount, but not until then.  I have been learning about a new type of investment that creates almost immediate cash flow. It is called Peer-to-Peer lending. This is where you take a chunk of money and send it to a company, such as Prosper or Lending Club, and they disperse very small amounts, determined by you, to many different borrowers. The borrowers have a set time period to repay the loan, plus interest. Usually, they start repayment within 30 days or so, and this is when your cash flow begins. It ends when the term is finished, often 2 or 3 years or so. Because the money you loan is sent to so many different borrowers, each only getting a small amount, your risk is reduced. Even if a few borrowers default, you will still get the majority of your money back, along with interest. If you send chunks of money whenever you have them, the pay back can essentially stack up, giving you more cash flow until the loan terms start expiring. You could use this extra cash flow to pay down debt or invest in larger, more permanent investments such as real estate.

I learned about this from a company who I hired to be financial coaches for me called Tardus. The founder has created a calculator that can figure out the most efficient way for you to use this type of investing to meet your goals, and eventually potentially even replace your income. Although I am pretty savvy when it comes to money, this system is helping me stay accountable, and advance faster than I was doing so on my own. It does cost money, though they say if you don’t make enough to cover the fee after the first year, they will refund it. I am about half way through my first year, and it looks like I am on track to make at least as much as it cost, with that number continuing to multiple as I continue the process. Currently, I am set to see about a 22% cash-on-cash return, with about 10% of that being interest. For me, this is beating my traditional stock market portfolio currently by almost 5% interest, and I don’t see any cash flow from that because it is tied up in retirement funds I cannot access.

Depending on your goals, peer-to-peer lending could be a good option. Something to remember is that it is temporary, because the loan term ends and thus your cash flow does, too. There is some risk that borrowers won’t pay you back, just as there is risk in the stock market that the value will fall. However, if what you want is monthly cash flow that can be stacked up and eventually used to pay for long term investments, this may be a good option.

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How to Invest in Real Estate

Real Estate Investment Options

I have been doing a lot of research into alternative investments, after watching the crazy see-saw that the stock market has been over the past few years. I have a desire to create a secondary source of income, as it is all too easy for a person to lose their job when the economy takes a hit, or if they get hurt and can’t work.  I have a financial advisor, and he always tells me just to stay the course, and keep buying when stocks are low and when they are high so that it “dollar cost averages”, meaning the amount they are worth evens out over time and eventually makes a profit. The funny thing, is that most of that profit seems to appear when I am a very old woman, and probably won’t be doing much with it. In the meantime, I work myself to the bone, and put money in the stock market, which often feels like throwing it away, all while hoping I have enough to retire before I die. This is what made me start looking into other ways of building wealth. 

There Are Many Options in 2022

One of the standout options is to start investing in real estate. I have wanted to do this for many years, but I never seem to have enough capital to buy another house, let alone several. I started watching the real estate investing gurus and mentors that are all over the internet, and doing my own research on sites like Bigger Pockets and Roofstock. I have also watched hundreds of hours of webinars and free trainings online, most of which culminate in someone selling something. They do have some good information, though. These online gurus tell you about creative financing without using your own money. There are various angles of this approach, one of which is wholesaling.  What it boils down to is you have to a. convince someone to sell their house at a discount and get them to sign a contract, then b. quickly find someone else who wants to buy it for a little more, and you make the difference as a finder’s fee. You have to be very careful, though, because if you do it wrong, or ask the wrong people it could be illegal, or you may get scammed by the person supposedly willing to buy it. It is possible to do, and it seems people can make a lot of money doing this, but I struggle with it, because I am not an outspoken, hustler type person. I would have a very hard time talking to people and trying to get them to sell their house to me, while relying on someone else to actually come up with the money. I am a pretty linear thinker, who loves to have a strong plan with contingencies, and this seems like a lot of moving parts and potential pitfalls. 

The gurus also tell you about using other people’s money, or OPM, to fix and flip houses. The concept starts similarly to wholesaling, where you have to find a house at a discount. Then you get someone to invest the money, plus the amount needed to fix it up. You could get your own financing for this through a bank, as well, but of course you need to have the money for the down payment and close. This amounts to somewhere around 25% of the selling price. After you fix the house up you can sell it for a profit, or keep it and rent it out. If you can’t come up with that kind of down payment, there is the option of house hacking. This is where you would buy the house as your own place to live, typically requiring much less up front, like 5-8% with closing costs, give or take. The catch is, you have to stay there for 2 years, or at least not rent it out for that long, in order for it not to be mortgage fraud. During that two years, you would renovate the home, and then you could sell it or rent it out. 

There are some ways of investing in real estate that are less hands-on. You can buy the lien on a house, with the idea that the person who owes it will pay you back with interest or else forfeit the home to you. You can join a crowd funding site, where you buy shares of a large conglomerate of real estate, without owning the individual assets directly, but getting returns over time as the asset appreciates and is sold, or sees returns from rent. This is the idea behind Fundrise. They are a reputable company that sells e-shares of properties, which are not publicly traded in the stock market. The money you invest gains value as the assets appreciate, and you have the option of liquifying your investment quarterly, provided the market is not in too much of a spiral. Fundrise has the ultimate say in whether or not they can liquify your shares, based on if they can get someone to buy them, or whether it would cause them a loss. They expect people to look at the investment as long term, like any real estate investment, and keep their money in place for at least 5 years to see the most return. You can also invest in Real Estate Investment Trusts, or REITs, in much the same way as you would invest in stocks. You buy shares of theses funds, that are representing companies who invest in real estate, and as their profits increase they are distributed to shareholders proportionately. The great thing about these is that the money is still fairly liquid, meaning you can decide to sell your shares and have the money in your bank account in a matter of days, just as you would a stock that you sell. The bad part, is that it is essentially like owning stocks, and subject to some volatility. 

All real estate investing, and really any investing, comes with risks. Your money may not make any money at all. It could even lose value. Your money may not be available for withdrawal for many years. If you are investing in rental homes, you have all the responsibilities of a  landlord, and your investment could actually cost you more than it makes you. Statistically, real estate is considered more profitable and less volatile than the stock market, and has been known to build people’s wealth over time. It does have some major drawbacks, and it can be very expensive to get started, but if you go into it expecting to stay invested long term, and willing to accept the risks and downsides, it is still an investment many people will be happy they ultimately pursued. The most important thing is to do your research, and know what you are getting into before you do it. I will continue to post information that I learn about real estate investing, so keep visiting FinancePlainandSimple.com to learn more.

 

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Paying for Final Expenses

Planning Ahead

Nobody wants to think about what happens after they pass away, but the fact is, there are a lot of financial matters involved that are best taken care of before that happens. The worst thing that can happen is to die unexpectedly, with nothing in place, and leave your loved ones with a big financial headache on top of their grief.

I recently experienced the loss of my mother, and I can say wholeheartedly that I was in no shape immediately after her passing to think my way through all the things that needed to be done. Luckily for me, my mom planned ahead, at least a little. She bought a small insurance policy specifically for final expenses. With one phone call, the company took care of the bill at the funeral home, and sent me the remainder of the policy funds. I didn’t have to worry about writing a check on the day I received her ashes. Trust me, that day was hard enough.

Life Insurance vs Final Expenses Policies

My mom chose the final expenses type of policy because she couldn’t afford a regular life insurance policy. She didn’t work, and lived off of meager Medicare funds. She was also a lifetime smoker, so her premiums for life insurance would have been very high. This policy was under $50 a month, and she paid it diligently because she adamantly did not want to be a burden on me and my family. The final expenses policy paid the funeral home directly, while a regular life insurance policy would have been sent to me, and I would have paid the funeral home from that. I may have had to pay the funeral home first, which could have been a problem if I didn’t have the money.

For any policy that includes life insurance or just final expenses, the cost will be determined usually by the person’s age and health status. Therefore, it is generally much cheaper to put in place when you are still young and healthy. This is the same for insurance such as long term care and health insurance. The earlier the better, before you have health issues that will drive up the cost.

As always, when looking for a policy, shop around first. Compare what you will get out of it as well as the overall cost. Buying while it is still relatively low cost will give you peace of mind, knowing you are taking a big financial weight off of the loved ones you leave behind. Take it from me, the weight of their grief is heavy enough.

 

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Long Term Care Insurance

When it comes to thinking about ourselves eventually getting old and needing extra help, most of us have a tendency to shy away. No one wants to envision ourselves as frail or sick, especially when we are young and in the prime of life. Unfortunately, when it comes to any type of insurance that relates to our health, that is exactly when we should be planning for the future. Just like retirement, the earlier you start planning and saving, the cheaper it is, and the more it will benefit you.

Washington State has recently passed a law requiring everyone to either pay a 0.58% tax to opt in to a statewide long term care insurance policy worth $36,000 in today’s money, or show proof of their own policy. If you purchase your own policy before this goes into effect, you can opt out of the state version. Once you opt out, you cannot opt back in. This has sent most of us into a scramble to learn about Long Term Care insurance, and try to figure out if the state policy is what we want.

It turns out, the state policy has some glitches. First, if you aren’t able to opt out, you will get charged automatically from you paycheck. The tax is a percentage of your earnings, so people who earn more pay more. It also is only good as long as you remain a resident of Washington State. Plus, you have to pay into the plan for 10 years (with some exceptions), before you can use it. If you never use the long term care insurance, you just lose the money you paid in. For these reasons, many people are looking into getting their own private policy.

While these policies vary, and they are not exactly cheap, most of them do offer some advantages over the state plan. First, they don’t require you to live in a certain state. If you move, they move with you. Many of them also come with a life insurance part which means that if you don’t use the long term care, it will convert to a set amount of life insurance in the event of your death. Some offer a higher benefit amount for a similar amount of money. Most do not have a very long period, if any, before the benefits could be used.

So far, the policies that I have found are a bit more expensive, but I am drawn to the benefits. I hesitate to use the state version because there is a good possibility I won’t live in Washington when I would need the benefits. This means I definitely need a private policy. My work is going to offer a policy, but as of this writing, I don’t know its details or its cost. As with any money decision, I will shop around and look at several options before making an informed decision. The one thing I can say for sure, though, is that any policy will be cheaper if you buy it when you are younger and healthier. The longer you wait, the more it will cost you, and likely the less benefit you will get. So, shop around now and save yourself some money and stress. Your future self will thank you.

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Playing the Stock Market with Apps

These days, you don’t have to work on Wall Street to invest in the stock market. You don’t even have to be a finance professional. With as little as $5, you can invest in a piece of your favorite company via an app, like Stash, Acorn or others. What’s not to love?

Stock Market Investing and Emotion

As you may know, investing in the stock market can be an emotional roller coaster. Stocks by nature go through cycles of loss and gain. Over time, the stock market statistically will gain value. However, an individual stock may rocket to record highs and plummet to barren lows in the course of a day. If you are like most people, your inclination will be to invest in a stock that is doing well, and avoid stocks that seem to be losing value. The problem with this is, it means you will be buying when the price is high, and maybe selling when it is low. In essence, you won’t be gaining as much, and you may be losing a great deal. As humans, it is a hard thing to overcome. They say that if you buy and hold a stock over a long period of time, or better yet own a very diverse portfolio of stocks and hold them, you will eventually see overall gains. This can be very difficult to do if you are watching your portfolio ebb and flow day to day. Most advice you will receive about investing in the stock market will be to invest in a wide range, hold those stocks while investing more money into them at regular intervals, and don’t buy and sell too readily.

I recently put some money into a Stash account, to try my own hand at stock investing. I was hoping I would be so good at it that I could fire my Financial Advisor, and do it all myself, saving me money in fees. Turns out, I shouldn’t quit my day job, or fire my advisor.

My own stock picks were averaging about an 8% gain, which wasn’t terrible. Then, I decided to sell my lower performing stocks, as the market took an overall downward turn. This resulted in my gains dropping to about 1%. Meanwhile, my financial advisor has been averaging 19% gains, and hasn’t dropped anywhere near 1%. Thank heavens most of my retirement money is in his hands and not my own.

I fell into the emotional stock buying pattern, despite knowing it was a risk. I bought stocks like Apple and Tesla when they were at record highs. This meant I paid a great deal for a fraction of a share. Then, when the stock prices inevitably fell, I lost money. They aren’t worth the amount I paid. I will have to wait until their shares are priced at what I paid now to make my money back.

This is not to say that you shouldn’t invest using these apps. Maybe you will be better at not buying and selling than I am. Just know that it isn’t as easy as it seems, and there is not shame in leaving your investing to the professionals.

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Lower Your Mortgage Payment without Refinancing

Refinancing Isn’t The Only Way to Lower Your Mortgage Payment

By now, you have probably heard of refinancing your mortgage. This is where, when interest rates drop significantly, you essentially trade in your old mortgage for a new one. The downside is that it costs you quite a bit of money. You have to pay for an appraisal and fees and closing costs just like you did with your first mortgage. It can result in you having money on hand for needed repairs or debt payoff, and a lower overall payment, which makes it overall a good idea when interest rates are significantly different than they were for your first mortgage. This is a current trend in today’s market.

Recasting your Mortgage

If your current mortgage rate is pretty good, there could still be a way for you to lower your mortgage payment. If you have a large chunk of cash sitting around not gaining much in interest, putting that money to your mortgage might be a good option. First, ask your mortgage holder if they offer what is called a mortgage Recast option, and if they do, ask them if there is a fee. I have Wells Fargo, and they do not charge anything. Recasting a mortgage is when you make a very large principal payment, and as a result, the mortgage lender re-amortizes your remaining balance. This means that the loan length and interest rate stay the same, but the payment gets lowered because you have decreased how much has to be paid off over the remainder of the loan years. For example, I currently owe about $123,000 on my mortgage. I pay $883 per month toward principal and interest, not counting the escrow (taxes and insurance). If I pay a one time payment of $50,000, my payment drops to $374 per month for principal and interest. This means I am obligated to pay over $500 less per month, which can be a life saver in case of hard times later. If I continue to pay my normal payment after making that large principal payment, my loan will be paid off years earlier. Or, I could invest that extra $500 per month, potentially making tons of extra money over time. That same $50,000 is only earning about $20 per month in interest in a savings account right now, so it seems like a good time to consider putting the money somewhere that it can at least save me money in interest.

What to Consider First

I would only consider doing this if you already have a significant emergency fund saved up. If you find that you still have a large chunk of change that isn’t earning you significant interest, it could be a good time to put that money to work. Remember, if money isn’t at least earning enough to offset inflation (at least 2% or more), then it is essentially losing value over time. Better to put it somewhere that either earns you more (investing), or saves you more (decreasing debt).

Take Aways

There is more than one way to change your mortgage payment, if you have significant savings in the bank.

Always make sure you have an emergency fund that is easily accessible before putting large sums of money into investing or recasting a mortgage, or any other endeavor for that matter. Security is essential.

Talk to your financial advisor about where to put extra savings, and consider recasting your mortgage as a possibility that may not cost you anything except the payment you put toward your mortgage.

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Financial Tips for a Merry Holiday Season

The Holidays and Money

Do the holidays fill you with a mixture of emotions, from joy and excitement, to dread and anxiety? If your finances tend to get out of control during the season of giving, you aren’t alone. Even the most disciplined of us can sometimes let the joy of giving override our sense of frugality. People tend to think more in the short term, than what will happen to us later on if we make the wrong decisions now. The fact that monstrous debt is not only a reality for most people in developed nations, but even expected, is case in point. We are given credit cards and told to spend as we will. We graduate from college with mountains of debt. We buy a house above our means because the mortgage company and “keeping up with the Joneses” says we should. Why should the holidays be any different?

Wouldn’t it be great if there was a way to make the holidays less stressful, at least financially? It turns out, there are a few tips that could help, but they take some planning. Like almost everything when it comes to money, looking ahead will get you further than spur of the moment approaches. One idea would be to set a yearly holiday budget. Then, open a savings account and set up automatic withdrawals on payday to be put into that account through the year. It doesn’t have to be much. If you get paid every 2 weeks and put aside $10 each time, by the end of the year you would have over $200. That would sure beat having to take it all out of one check. If you put it into a high yield savings account, you could even have a few dollars of free money (minus taxes) to top it off.

If you are a little more adventurous, and want to make potentially a little more money with your money, you could put that same amount into the stock market in a diversified fund. Use an app like Stash or Acorn, and you would be able to withdraw your money plus earnings by selling the stocks at the end of the year, or even just a portion of them. Beware that whatever gains you make this way do count toward your income for the year, though, and will be subject to taxes. The potential is there, though to make a decent percentage of gain, as the stock market historically makes between 6% and 10% over time.

Another idea is to keep a list of people you like to buy for in your purse or wallet. Throughout the year, as you see gifts that would suit the people on your list, you could buy them one at a time. This would spread the cost over the year, instead of having to put it all on the same credit card at the end of the year and play catch up for the following months.

Don’t forget that some people really value the thought of the gift over the cost of the gift, as well. What about making a gift for someone that touches on something personal for them? Dressing up a picture frame with glue and glitter, or special words, with a picture of you and that person together can touch a heart. Think outside the box. Spending time with your mom one-on-one would probably mean more to her than any trinket. There are probably hundreds of ideas similar to this one that wouldn’t break the bank, but would still carry meaning. Isn’t that the true idea behind gift giving, anyway? We want the person receiving the gift to know that we love them, value them, think of them, and want to see happiness on their face. That counts for you, too. The holidays should make you happy, not totally stress you out. Try one or more of these tips, and maybe one will work for you.

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Why the Stock Market is Booming and the Economy is Struggling

If you watch the news, you have probably noticed two things: the economy is struggling, and the stock market is booming. I always thought that the stock market was part of the economy, with the economy being the bigger picture of how the country is doing and the stock market reflecting that. I was totally wrong. The two are only loosely connected, as one can clearly tell at this point. The question is, why?

What is the Stock Market?

The stock market is basically what it sounds like: a big marketplace where people can buy or sell portions of ownership of companies and groups of companies in related industries. People who invest in the stock market are basically doing so based on what they think will happen to these companies or industries in the future. The stock market is dominated by some massive companies and industry sectors. Many businesses are not publicly traded, and thus not reflected in the stock market at all. In fact, the number of companies represented has shrunk significantly in the past decade.

What is the Economy?

This is a broad term for a country’s resources, and the demand for them. Supply and demand are terms that describe what drives a capitalist economy like the USA. There are a number of indicators that tell us if a country’s economy is doing well. These include things like the price of crude oil, consumer confidence levels, unemployment numbers, and sales of goods and services of various types. The bond yield and interest rates also play a role.

COVID-19 and Stocks

A few companies and sectors have done extremely well during the pandemic. These companies have driven the stock market to record breaking heights. There was a small dip when the country was in lockdown, but once companies figured out ways of doing business that worked even though their workers stayed at home, the market rebounded. People who were stuck at home bought things from the internet more than they did by going to local stores. This drove up the stocks for companies that provided shipping services, delivery, and essential goods and services.

Aside of increased demand for some goods and services, the stock market is based on what investors think will happen. In the case of COVID-19, it seems investors are betting that once there is a vaccine or a return to “normal”, the value of company stocks will go up. This causes investors to buy, which makes the cost of the shares increase. Also, when a company’s earnings have decreased, a temporary decrease in stock price often follows, which in turn leads to a big buy of those stocks, leading to an increase in those stock prices, all while investors hope they eventually gain even more value. The government has decreased the interest rates, so people have been putting more money into stocks than bonds, CDs and savings accounts.

COVID-19 and the Economy

America is still suffering from massive unemployment. Many businesses remain closed. The virus infection rate is increasing at an alarming rate, and there is concern that it will require a return to lockdown to get it under control. People who are out of work are facing mounting bills and little job prospects. People are not spending as much money on travel or non-essential purchases, so these businesses continue to suffer. The housing market is expensive due to decreased inventory, but may be headed for a crash as people who are currently protected from having to pay rent or mortgages are asked to do so and find that they do not have the money. This could lead to vast foreclosures. While some businesses may be doing ok as they learn to change their business model, many are devastated and have had to close their doors forever as the stimulus money that may have kept them afloat has run out.

In Summary

These are hard times, around the world and in America. There is a massive disconnect between the stock market and the overall economy, and this is highlighting the fact that the two are not the same thing at all. For most people, it is the economy that they feel in everyday life. The cost of goods and services as they rise and fall. The availability of resources, or lack thereof, as demand surges beyond supply. The loss of jobs, and the rising cost of housing and healthcare. These are the things that affect the people. So next time you see the stock market soar, do not take it to mean that the economy is doing the same.

 

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When Saving Money Can Cost You

I am sure it won’t be a surprise to hear that I tend to be a bit conservative when it comes to spending money. If you have read any of my other posts, you probably know by now that I put a lot of thought into purchases-especially those that will cost me a chunk of money. My brain can analyze the purchase to the point of insanity, and in many cases I talk myself out of buying things. Many times, this is a good thing. It decreases the number of times I have buyers regret. I rarely give in to impulse purchases. I save a lot of money by not buying things I ultimately didn’t need.

I have recently discovered the flip side of that coin. There is such thing as being too frugal when it comes to certain things in life. Sometimes saving money can cost you more in the long run. Have you ever bought the cheapest version of something, only to have it break or not work as soon as you got it home? Maybe you talked yourself out buying that tool set you have been thinking about, to have your dishwasher break two days later.

This past weekend, my wife and I thought we would have a nice day at the beach. We took the reliable car that gets the best gas mileage, and off we went. About 5 miles from the town, my car started beeping. It flashed a warning: Low Oil Pressure. We were in the middle of nowhere, on a country road with not another soul or business in sight.

I flashed back to that time a few months ago when I got my oil changed and the mechanic told me there was a small oil leak. They wanted $500 to diagnose the problem, and who knows how much to fix it. Being the skeptic of mechanics that I am, and the person who doesn’t like to spend money without knowing all my options, I declined. I thought I would have someone I knew check it out for me and verify that there was really something wrong before I got it fixed. Well, that person never checked the car out. Now, I was stuck.

I promptly called my roadside assistance company that I have had for over a decade. They are the cheap version of AAA. They cost a fraction of the price. On this day, I found out why. I was about 100 miles from home. The towing that was covered was $100. That probably translates to about 5 miles, after the hook-up fee. I was told I would have to pay the rest when the tow company arrived-a whopping $349! Also, because of COVID 19, the tow company would not allow us to ride in the tow truck, so we would have to find our own way home, with our 120lb dog, to boot. What choice did I have?

I then remembered that my friend happened to be camping in the town that I was now stranded. I gave her a call, and she and her husband came to the rescue. They offered to use their AAA membership, which covered up to 200 miles of towing, plus a rental car and hotel if needed. I asked her what she paid for that kind of coverage, and it turns out it is less than the $349 I was going to have to pay for towing. So, for a lot less than I would pay for one tow, she had peace of mind in knowing that in this type of event she was completely covered for towing and for her own accommodations and ride home. Suddenly, my discount roadside assistance service didn’t seem like such a bargain. My frugality would now cost me a lot more money, and stress.

Take Aways

This was a blatant example of how there can be times that being too frugal can bite you. If you save money, but then have to buy something more than once, or what you bought does not actually provide what you need, then you may not really be saving money at all. You might even create a lot off stress, or get yourself into a sticky situation. Sometimes paying a little more for something will actually be the better bargain. You need to really evaluate your purchase to know if it is something where the cheap version is really worth the initial savings. Although nowadays it isn’t always true because things just don’t seem to be made to last, when it comes to services and some items, sometimes, you get what you pay for.

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