I wrote a few weeks ago about how many people are upset about the end of the Social Security tax holiday. Now that tax rates have returned to 6.2%, many people are struggling to readjust their budgets because they’d come to count on that money, rather than viewing it as a temporary windfall.
There’s another side to this issue and that is that many people were caught off guard by the end of the holiday. Either they didn’t know it was happening until they got that first reduced paycheck, or they didn’t find out about it until a month or so before it went into effect. Despite the fact that many in the media had been talking about it for six months or more, many people still had no idea that it was coming. Because they were unaware, they missed the chance to proactively adjust their budgets and instead had to scramble to make the bills with a reduced paycheck.
What this mess illustrates is that we, as citizens, have to pay attention to anything and everything that might affect our money. It’s tempting to tune it all out as noise and political wrangling. It’s not exciting and following the governments’ twists and turns can be detrimental to your blood pressure if party politics tend to rile you up. Well, it may be all of that and worse, but it’s essential to pay attention to it if you want to manage your money well.
The government makes many changes that affect our money, and some slip by so quietly that we don’t know they’ve happened until it’s too late. If you pay attention, though, you will be aware of what is going on. So what do you watch for? As a citizen concerned about your money, you have to watch for many things. Here are just a few.
Changes to Taxes
Are taxes going up? Down? Are certain deductions being eliminated or reduced? New ones added in? Are there programs like energy credits that you want to use before they expire? At the local level, are sales taxes changing? Are your property taxes being reassessed? Are the taxes on your retirement withdrawals going up or down? We all have to pay a lot of taxes and getting complacent about the amounts we pay and the deductions we get can hurt us. You have to stay aware of what’s changing and react accordingly.
Changes to Retirement Savings
Unless you’re one of the lucky few who’s going to get a full pension at retirement (and even then, you still need to be somewhat aware because your pension may be in danger) you have to keep abreast of the new laws and products related to funding your own retirement. Are contribution levels being raised? Are new products available like Roth IRA’s? What are the implications for your taxes if you participate in the various programs? Are deductions going up or down? Are the ages for catch up contributions changing? Are minimum withdrawal amounts changing? Every change can affect how much you can save, where you can save it, when you can withdraw it, and how much you’ll pay when you do. It’s important to understand these things.
Changes to Government Programs
Things like Social Security and Medicare will affect all of us someday. Just because you’re young doesn’t mean you don’t need to pay attention. Changes to these programs may impact how much you need to save for retirement and how you’ll have to procure health care. For those closer to or already in retirement, any changes can impact your benefits and the amount you receive. It’s better to know about changes than to be blindsided by a smaller than normal check one day.
Changes in Interest Rates
When the Federal Reserve changes interest rates, it affects everything from your borrowing costs to the interest rate on your savings account. You have to pay attention because any change can affect your debt payments if they are variable and tied to the prime interest rate. Lower rates may signal a good time to go house shopping, while higher rates signal a chance to earn more on your savings accounts and CD’s.
Domestic Money Issues
If you think that the debt ceiling or the passing of a new budget each year doesn’t affect you, you’re wrong. These things impact taxes, employers’ willingness to hire, the stock market, government programs and spending, and the availability of certain services. You have to know what’s going on with the country’s spending if you want to keep your money safe and growing.
Foreign Money Issues
Just because it doesn’t happen here doesn’t mean it doesn’t matter. You only have to look at Europe’s debt crisis to see what happened to our own stock market as a result. Any time there is unrest or trouble in other parts of the world, it trickles into our economy. Because we are all so interconnected and dependent on one another these days, a lengthy strike or a war in another country can impact our economy.
Now, none of this means that you have to become an expert on foreign and domestic policy, economics, and taxes. No one can know everything about every issue that will impact your money. But you do have to be generally informed and aware. Read a newspaper occasionally. Watch Bloomberg TV or CNBC. Read the news online. Listen to news radio while you drive to work. Just pay more attention generally to what’s going on in your local, state and federal governments.
I’ll be the first to admit that reading about this stuff isn’t as interesting as checking the sports scores or seeing which celebrity did something stupid today. It’s not even up there with watching the latest viral YouTube video. But it is something you have to do if you want to make smart money decisions. Only by knowing what’s going on can you prepare for it and change your money strategies. When you know what’s going on, you can also join the movement to lobby for change. Don’t like something the government is about to do? Speak up and get involved. At least know enough to be able to cast an informed vote for the candidate who shares your views.
You have to take an active role in managing your money if you want it to grow and work for you. That means knowing what the government is doing and how it affects you. If you just wait for things to happen, you’ll always be reacting and you’ll always be playing catch up. Those who pay attention have the chance to be proactive and to either take advantage of opportunities or limit the damage.
(Photo courtesy of R/DV/RS)