Personal Finance

3 Reasons Why You Should Pay Down Debts ASAP

May 28, 2021 By Justin Weinger Leave a Comment

While being debt free is idyllic, and a goal for many people. The reality is that it is hard. And what commonly happens when people are faced with something hard? They postpone it. While that is a common coping mechanism, doing so regarding debt is not going to do you any favors. Forget about the fact that allowing debt to build up is only going to dig your hole deeper, it is also going to seep its way into other areas of your life, potentially holding you back in scenarios where you would not have ever dreamed it could.

Improved Financial Knowledge

While debt can undoubtedly be stressful, it can also be a wonderful learning tool. If you are a person with debts of any size or kind, there are things to be learned from both how you accumulated those debts, as well as the habits you build regarding repayment. Taking an unfiltered look at repayment options to tackle some of your larger debts can set you up nicely to not only pay them down but understand how to manage your personal finances in the process.

Credit cards are one of the most common forms of debt. Spending money that is out of sight and out of mind can catch up to you quickly, and traditionally the interest rates associated with certain credits cards are unfavorable. If you are homeowner, consider tapping into your homes equity to pay off high interest credit cards and alleviate yourself from that debt in one swoop. You can review a guide specially geared towards home equity loans whether you are looking to take out a home equity loan or learn about recent laws or interest rates and this can make your options a lot clearer.

Increased Savings

As you work to pay off debt, that money must come from somewhere. Cutting back on unnecessary expenses is common practice however it is not uncommon for some to pay off debt as opposed to actively saving money. Depending on your debt totals, and future savings goals, prioritizing paying off debt can help you to save more. As you tweak your budget, and begin to experience debt totals that are lower and lower each month, you will begin to realize there are lessons to be learned from paying it off. If you can create enough discipline in your budget to allocate money formally needed to pay off debts, to savings, you will not experience much of a lifestyle shift day-to-day but what you will experience is growth in your savings that feels natural. If you are someone who thrives off compartmentalizing tasks, this process will feel especially gratifying.

Fiscal Confidence

Money troubles do not exist only in your bank accounts, they can creep into the mental and emotional spaces of your life as well. While it is important to understand that your financial situation does not define you, that can be easier said than done for people experiencing financial hardship. Debt will drag you down, but it does not have to. Once you have decided that now is the time to work towards debt-free living your confidence will increase as each new milestone is reached.

Financial Wellness 101: Assessing Your Relationship With Money

May 27, 2021 By Susan Paige Leave a Comment

Having a relationship with money can be just as complicated. It can present problems in your life if you don’t know how to handle your finances properly. At some point, you need to realize if it’s affecting you and your human relationships as well. You can begin to assess the one you have by looking at how you express your positive emotions when you’re in a relationship. In a way, it can reveal something about yourself as well. [Read more…] about Financial Wellness 101: Assessing Your Relationship With Money

How To Make an Income by Earning Cash Back

May 25, 2021 By Susan Paige Leave a Comment

There are so many options out there to get cashback from your purchases. However, a lot of them can be a big hassle. Such as having a limited number of merchants to buy from, having to wait for the payout or even just keeping track of your receipts to scan them. By the time you jump through all of the hoops, the money you get back barely feels worth it. So how do you take advantage of cash back apps in a way that allows you to earn an income without all of the hassle? The trick is to use the right tools. [Read more…] about How To Make an Income by Earning Cash Back

Is It Inflation Or Fear of Inflation?

May 23, 2021 By Max Erkiletian Leave a Comment

You may read or hear the term “inflation fears” being used with increasing frequency. In turn, that raises the question of what we’re dealing with — is it inflation or fear of inflation?

What Is Inflation

Let’s start by defining terms. We will assume you know what fear is. On the other hand, you may not be sure about inflation.

Inflation is the increase in prices throughout the entire economy. Consequently, a rise in gas prices alone is not inflation. However, if food, housing, general goods, and gas prices jump together, you are dealing with inflation.

The primary measures of U. S. inflation are the Consumer Price Index (CPI), Producer Price Index (PPI), and personal consumption expenditure price index (PCE).

In April, the CPI jumped to 4.2 percent, its biggest 12-month increase since September 2008’s 4.9 percent hike.

Markets React

With one of the primary inflation indicators jumping, many wall streeters started selling. (Cue Chicken Little!). However, the Federal Reserve did not take the bait and stilled inflation fears by reasserting its stand against raising rates. The Fed has said repeatedly it expects “transitory inflation” as the economy reopens.

Fed Chair Jerome Powell has stated he does not see a need to tighten monetary policy until inflation runs above two percent for an extended period.

The central bank’s consistency calmed fears and stocks bounced back.

“Inflation is a process and not a one-time event,” said Chris Low, chief economist at FHN Financial told Reuters. “These bottlenecks are one-offs. The Fed will not consider action until it views price levels changes as permanent rather than temporary, something it does not consider possible until the economy is at full employment.”

Was April a False Inflation Positive?

There is an argument to be made that April’s CPI was a reflection of the anormal not the new normal.

Many areas seeing inflation in April’s CPI were the result of an economy recovering from the pandemic. About half of price increases came from four segments. They were: used cars, car rental, airfare, and dining out.

With more vaccinations and COVID-19 restrictions relaxing, Americans accelerated travel and leisure activities. As a result, there was a sudden burst of demand hitting a limited supply. The April CPI reflects the difference between a pandemic lockdown economy and a rapidly rebuilding economy.

Used Car Prices Lead the Way

“The index for used cars and trucks rose 10.0 percent in April,” according to the U. S. Labor Department. “This was the largest 1-month increase since the series began in 1953, and it accounted for over a third of the seasonally adjusted all items increase.”

Shortages

Like many industries, the rise in used car prices is the result of shortages.

The shortage of semiconductor chips has lead to an increase in electronics and automobile prices. With new cars in short supply, the demand for used cars has increased.

At the same time, shortages brought on by the pandemic have moved other prices higher. Car rental companies that drastically cut their inventories during the pandemic are now swamped with customers.

Travel bans and lockdowns lead to airlines cutting back and reducing staff. Meanwhile, restaurants went through the same process. Ramping up again takes time.

The elevated price of lumber has contributed to the rising cost of home purchase and home repair prices.

Is It Inflation or Fear of Inflation?

Shortages are often overcome with increased output. However, it takes time for services and products to catch up. As a result, some sectors, such as leisure, the automobile industry, and travel will recover in time. The question is, how much time?

The Fed’s criteria of two percent inflation over an extended period gives businesses time to recruit workers and ramp up manufacturing. However, it takes more time to grow a tree.

What To Do?

If Chair Powell is right and all the economy needs is a little time for supply to catch up with demand, all we need is patience.

However, some expenses are high regardless of inflation. The cost of education drives most college students into debt and medical expenses are the leading cause of bankruptcy in this country. Nonetheless, those costs may be considered systematic failures rather than inflation factors.

Safe Havens

If you are concerned that inflation is coming sooner rather than later, you might want to make a few moves to balance your assets.

If you have an adjustable-rate mortgage, you might consider locking in a low rate with a fixed-rate mortgage.
Floating rate bonds. As the name implies, the interest rate on these bonds fluctuate based on inflation. To get maximum diversity, you can invest in a portfolio of these bonds through mutual funds and ETFs.
Gold. Owning gold has been a favorite tactic of inflation bears for a long time. They like the fact that it holds its value. Again the best way to own gold may be through an ETF or mutual fund.

Caution

Some investments can get you stuck with low returns if inflation does not materialize.

Long-term bonds. Many investors favor these bonds for safety. They do protect principal but lose ground when interest rates take off.
Long-term CDs. Again, this is a popular investment for those seeking safety. Like long-term bonds, CDs protect your principal. However, if inflation accelerates, your CD will be left at the starting gate.

Conclusion

George Bernard Shaw said, “If all the economists were laid end to end, they’d never reach a conclusion.” And people thought he was trying to be funny.

A lot of analysts are talking about inflation. As a result, a lot of average investors are becoming concerned. However, the Fed, which is tasked with reining inflation, is advising patience.

If you’re confused about what to do, that’s understandable. For most of us, the right move is to keep our investments balanced and flexible. That means not getting locked into long-term fixed rates – unless your talking about your mortgage. It also means spreading investment risk through diversity. For most of us, that means finding a few mutual funds or ETFs that align with our financial goals and investing in them monthly.

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Weekly Financial Wrap: Housing, Car Subscriptions, Inflation and Value Investing

May 22, 2021 By Max Erkiletian Leave a Comment

Housing Market Peaking?

Home sales continue at record levels. However, prices show signs of easing — indicating a slightly more buyer-friendly market.

“Even though homes continue to sell faster in what is solidly a sellers’ housing market in most areas, another jump in the number of new sellers compared to a year ago has caused some of our weekly metrics to take a tiny step in a more buyer-friendly direction,” writes Danielle Hale, chief economist for Realtor.com. “Home price gains eased this week although they continue to grow at a double-digit pace. On top of this, the size of inventory decline held steady. Buyers will still have to move fast and are likely to face competing offers, but there are signs that as sellers come to market, the intensity of the competition could lessen.”

Stiff Competition

Over the past 39 weeks, demand for houses has exceeded the supply of houses for sale. As a result, many houses are selling above their asking price.

A Realtor.com survey found that 25 percent of first-time buyers lost a bidding war for a home.

On the bright side for buyers, new listings were up five percent the week ending May 8. Plus, another Realtor.com survey indicates more sellers are getting ready to jump in the pool.

More Sellers

“The survey results show that 10 percent of homeowners across the United States plan to sell within the next 12 months,” writes Realtor.com Senior Economist George Ratiu. “The figure is noteworthy because it is 25 percent higher than the typical share of homes which come to market in a typical year.”

That same survey reveals that 16 percent of homeowners said they are likely to list their homes in the next two to three years.

For now, costs are still high with May’s median listing price expected to top April’s $375,000. However, with more sellers indicating they are ready to enter the market, buyers may get some relief.

Car Subscriptions Growing

The next trend in the automobile industry is vehicle subscription services. This business is projected to grow into a $12 billion industry by 2027.

How It Works

A car subscription service provides you with a vehicle for a monthly fee. Subscriptions run anywhere from one to 12 months. The service often includes maintenance, 24/7 road service, and insurance. In addition, you can switch cars as often as every month.

The Future

“Flexibility, affordability, and convenience along with better benefits as compared to leasing drive the growth of the global car subscription market, “ according to a report by Allied Market Research.

Corporations will continue to lead the auto subscription market through 2027, says Allied. However, the greatest growth in subscribers is expected to be consumers. The private segment of the industry will leap almost 24 percent.

Big names have gotten into the car subscription business. Volvo, Nissan, Porsche, BMW, Audi all offer subscription service. In addition, leasing giants such as Hertz and Enterprise are also in the game.

Moving to Electric

In 2019, about 75 percent of subscription vehicles were gas-powered. That dominance is expected to continue for most of the next six years.

“However, the electric vehicle segment is estimated to witness the highest CAGR (compound annual growth rate) of 26.5% during the forecast period, owing to high penetration of the electric vehicle sales and traction towards electric mobility,” said allied.

In fact, one auto subscription company, Steer, only offers electric vehicles.

Is Inflation A Fear or A Reality?

A little over a week ago the stock market panicked over inflation fears. Then it bounced back after those fears subsided. So, are we headed toward inflation or not? How do you measure inflation after a pandemic? How do we guard against such uncertainty?

SA will try to answer those questions in Sunday’s focus article.

Return of Value Investing

Corporate earnings for the first quarter have largely exceeded expectations. In addition, the economy is opening wider all the time. As a result, the stock market is simmering just below record highs. However, some analysts say continued gains may be choppy citing the uncertainty of inflation and tax issues. Consequently, investors are turning from growth to value.

Role Reversal

“The S&P 500 Value index — made up of the top 100 S&P 500 stocks deemed to be cheapest as per their price-to-book value, earnings-to-price and sales-to-price ratios — has returned 8.6% in 2021 as of March 8, beating the 2.0% gain for the broader S&P 500 index,” writes S&P Global’s Peter Brennan.

The S&P Growth Index has declined 3.8 percent over the same period, Brennan points out.

So far this year, Russell indexes reflect the same trend. The Russell 1000 Value Index is up 11%. Meanwhile, the Russell 1000 Growth Index is down 0.2%.

That is the widest gap between growth and value stocks since the burst of the tech bubble in 2000.

Results Now

Growth stocks typically refer to stocks with the potential to one day deliver a return while surviving on debt. Low interest rates allowed tech companies to fund their growth that way. However, with concerns about the prospect of inflation, investors are looking for immediate value.

“As the rollout of Covid-19 vaccines quickens and the economy bounces back from last year’s shutdowns,” reports the Wall Street Journal, “portfolio managers are snapping up cyclical stocks—banks, energy companies and others whose fortunes are closely linked to economic growth. Those shares often fit the description of value stocks, which trade at low multiples of their book value, or net worth.”

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Ethical Spending: 10 Areas Where I Want to Invest

May 20, 2021 By Kathryn Vercillo Leave a Comment

Over the past few months I’ve repeatedly seen that New Money Goals commercial. People share money goals that relate to investing, spending, and obtaining good credit cards. The commercial mentions investing in black-owned businesses and green businesses. As a result, I’ve been thinking a lot about the types of places where I want to spend and invest my money.

Put Your Money Where Your Values Are

I’ve always felt that where you put your money matters. I believe that knowing your values and ethics and then spending in places that align with those are extremely important. After all, if something is cheap but it damages the world in a way I can’t accept, then I don’t want that thing. I can’t feel good about it.

Ethical Spending and Investing Isn’t Always Easy

For the most part, I think I’ve historically done a decent job of spending money with businesses that align with my values. However, I’m far from perfect. Honestly, you have to do some research and studying in order to find out the ethics behind a lot of businesses. Sometimes it isn’t easy.

Truth be told, I’ve slipped a lot in recent years. With the ease of getting things delivered directly to my door, plus the pandemic encouraging me not to go out to local shops, I simply haven’t been spending my money in the places I believe in most. For example, I hate fast fashion and have always shopped secondhand. And yet, in recent years, quite a few Amazon clothing items have managed to make their way into my closet. And I hate that. Therefore, I’m taking this opportunity to recommit to ethical spending.

10 Places Where I Want to Spend / Invest My Money to Match My Values

Here are the ten things that are really important to me when it comes to the types of businesses and people who I want my money to support:

1. Vintage Clothing Stores

I definitely want to return to my lifelong habit of only purchasing secondhand clothes. For one thing, I love vintage clothes. I also love vintage shops and thrift stores. I want to see them survive. Moreover, I really believe that it’s important to stop new fast fashion from entering the world. The more life I can give to a pre-loved item, the better.

2. Independent Fashion Designers and Small Clothing Businesses

That said, there are a few things that I don’t buy secondhand. I find it challenging to find secondhand shoes, for example. And I definitely think socks and undergarments are better when they’ve never been worn by anyone else. However, that doesn’t mean that I need to get online and put a random brand in my cart. Instead, I can seek out independent makers who knit and sew and make items like these.

3. Other Independent Makers and Artists

It’s really important to me to support people who run their own little shops. Whether it’s through Etsy, craft fairs, local markets or pop-ups, I want these people to make a living. I can’t always afford to support them. However, I do want a percentage of my money to go towards this end. One way I do that is by supporting some of my very favorite artists through Patreon. I also try to purchase / commission art and handmade items from people that I know directly whenever possible.

4. Small Family Businesses

Akin to the independent makers and artists, I love supporting small family businesses. Of course, it’s hard to specifically define “small”. We want family businesses to grow and sometimes they grow beyond the family. However, I think you can generally sense when a family business still maintains that family feel. (A true family feel, not the Bay Area tech startup “we are a family” mindset!) When I see a family-owned-and-operated restaurant or store, I want to give them my support.

5. Local Businesses and Arts

One of my favorite things about San Francisco historically is that it’s less friendly to big box stores and more friendly to small businesses. That’s shifted some over time but there’s still a spirit here that I like to support. Of course, it’s also expensive to run a business here due to high rent prices. As a result, I can’t afford to shop at local stores too often. However, every now and then I get the chance.

More than shopping at local stores, though, I like to give my money to the local restaurants, cafes, performance arts spaces, event spaces, etc. I frequently do buy tickets to events. I always tip the performers at shows. As much as possible, I try to support the people doing business here.

Moreover, I support small and local business through SMBX bonds investing.

6. BIPOC-owned, Women-owned, Queer-Owned Businesses

I want to support businesses that are owned and operated by people of color. Moreover, I want to support businesses that hire, promote, and empower people of color.

Similarly, supporting women-owned businesses and queer-owned businesses is important to me. I also work to support organizations, event spaces, and companies that are known to empower all of these groups of people.

7. Sustainable Eco-Minded Companies

If I’m going to shop with larger companies, in particular, then I want to know that they’re doing something good for the environment. At the very least, I hope that they aren’t harming the environment. It’s not always easy to tell about this stuff because there’s a lot of greenwashing that goes on. Nevertheless, I do believe in making the effort.

Similarly, I believe in at least attempting to purchase products that are low in chemicals and processing. I try to be green in my own life in the ways that I can.

And I try to put money towards change in areas where climate concerns are a big issue. For example, I’m very interested in cryptoart and NFTs but one huge problem with that right now is that it’s terrible for the climate. I’m putting my money in investments towards greener versions of cryptocurrency.

8. Fair Trade Companies

If I’m going to purchase items from a business of any size, then I want to know that the employees are treated well. Human trafficking and slave labor are very real problems in the United States and around the world. In particular, when I’m shopping from places I know work with artisans in other countries, I try to research that they utilize fair trade practices.

9. Peer-to-Peer Lending and Microloans

When possible, I like to loan money to other people so that they can do their own cool new things. Kiva loans, microfinancing, and peer-to-peer lending are a few of the ways I’ve done that in the past. Similarly, I’ll occasionally contribute to a Go Fund Me or crowdsourced funding goal.

10. Charities

I don’t tend to give a lot of money directly to non-profits and charities. After all, it’s really difficult to tell if the money is going where it’s supposed to go. However, there are a few select charities that I’ve researched well and worked with often enough over the years to believe in their work. I do give some of my money there.

What does ethical spending mean to you? How do you approach it and what have been the challenges? Let’s have a conversation in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Check out these helpful tools to help you save more. For investing advice, visit The Motley Fool.