The post Smart Moves to Make with Your Tax Refund appeared first on Penny Pinchin' Mom.
It is tax season!
You know the goal is not to get much of a refund.
However, a refund is always better than paying in!
But when that money shows in your account donât go and blow it on what you want!Â Make some smart moves with your refund.
Pay off debt
If you have debt then that means you should not have fun with any extra money. Nope. Every penny that you earn (beyond your regular income) should be used to pay off your debt.
While some experts will claim to pay the bill with the highest interest rate, I recommend paying the lowest balances first.Â The reason is you see results.
If you are getting $2,000 back and owe $500, $1500 and $2500, pay off two of your bills. Now,Â youâve got one payment and can roll all three monthly payments into one and pay that largest bill off more quickly.
You see progress in moving from three debts to one and that alone can be enough to keep you motivated.
Build your emergency fund
Experts used to say that your emergency fund should be three months of income for a family.Â After watching many struggle through the last recession, I recommend it be six-nine months instead!
I get that is a LOT of money to save up, but your tax refund can be the perfect way to build up your savings.Â But donât put it in your regular savings account. You donât want to be tempted to spend it.
Set up a new account at your bank. Deposit your refund into the account that is for emergencies only. Donât touch it.
Now youâve got money earmarked for your emergencies and should never touch it unless absolutely necessary.
Invest in your future
It is fun to spend money now but if your retirement accounts have taken a beating (or if they are non-existent) it is time to make that investment.
Visit with a financial expert and set up an IRA or other type of retirement savings account and invest that money.Â That $1,000 you fund today will be worth much more when it is time to cash it in.
Look around your house for appliances or vehicles that may need to soon be replaced. When you catch a sale, make the investment now. Donât wait for it to break down completely.
If you do wait, you may be forced to pay full price and your money wonât go as far. Being proactive and replacing what needs to be when the price is right is a smart money move.
Make home improvements
Look around the house to see what needs to be repaired or updated. Is the paint starting to peel on the trim? Is the carpet wearing out?
Your house is an investment youâve made so you need to take care of it. Peeling paint can lead to dry rot. Old carpet could lead to more stains, odors or even damage to the subfloor (which could cost you even more).
Take care of your house so when the time comes to sell, it is in great shape so you can get top dollar.
Do something for yourself
There is nothing wrong with making an investment in your well-being. In fact, it could be a very smart move.
When you feel better about yourself and give yourself the opportunity to get or do things you donât normally, it changes your perspective.Â You get the chance to focus on you and that is a GOOD thing.
Splurge on that handbag. Go out to dinner. Set up that spa day. Just donât go too overboard.
Spend it as a family
You can also get the family to weigh in what you can do with your refund. You may have no debt; an emergency fund and retirement looks great. That means you can do something fun!
Talk with the kids about what to do with the refund.Â It may be a vacation or adventure.Â It may mean buying a basketball hoop or bikes for everyone.
Work together to determine the best way to use the money.
A tax refund is your money. Use it wisely.
The post Smart Moves to Make with Your Tax Refund appeared first on Penny Pinchin' Mom.
Typical values for Black and Latinx-owned homes still lag behind overall U.S. home values, but the gap is narrowing.
A new Zillow analysis shows homes owned by Black and Latinx households are worth 16.2% and 10.2% less, respectively, than the typical U.S. home. Homes owned by non-Hispanic white and Asian families, meanwhile, have typical values 2.9% and 3.7% higher than the typical U.S. home.
While inequity in home values continues to persist, the data show them steadily, albeit slowly, converging. Since homeownership is the single largest driver of wealth for many households, the value and appreciation of a home is extremely impactful for families.
Before the Great Recession, the gap between Black-owned home values and all home values was about 15%, but grew to 20% by March 2014. Similarly, Latinx-owned homes saw the largest home value gap in May 2012 at 14% — 2 percentage points larger than before the housing bubble. Now, nearly a decade later, home values for Black- and Latinx-owned homes are back at pre-bubble levels, and continue to narrow despite the current economic crisis.
One reason for the wide gap is that the housing bust hit communities of color especially hard. Subprime loans were targeted to take advantage of the most vulnerable communities, and the ensuing wave of foreclosures hurt homeownership and home values disproportionately for Black and Latinx homeowners. Fast forward 12 years, and homeownership rates and home values are still recovering for these communities. While home value growth turned positive for U.S. homes in August 2012, it took an additional two years for Black and Latinx homes to see this same growth.
“It has taken nearly a decade for the home value gap to return to pre-recession levels, but still, the gap remains very large,” says Zillow economist Treh Manhertz. “With Black and brown communities and jobs hit disproportionately hard in the pandemic, there has been reason to worry another dip may be on the horizon that could slow or stop the progress. However, this is not the case, as the same factors that widened the gap in the Great Recession are not surfacing this time. Thanks to rock bottom rates on the most secure mortgages, extended forbearance programs, and rising home prices, there are no signs of another widening of the gap coming this year. However, through these turbulent times, continued vigilance and targeted intervention by policymakers is crucial to keep the progress going for communities of color.”
Home value inequality varies greatly in different states and metropolitan areas. Large metros with the smallest spread between Black-owned home values are Riverside (1% value gap), San Antonio (3%), Las Vegas (3%), and Portland (4%). Among the most unequal are Detroit (46% value gap), Buffalo (43%) Birmingham (43%), St. Louis (41%), and Milwaukee (40%).
Black homeownership rates are also on the rise since the Great Recession, despite challenges for Black homebuyers to secure a mortgage. Telework has the ability to expand the opportunity for homeownership even further for Black and Latinx renters, providing the flexibility to own a home in a less-expensive area.
The post Zillow study illustrates home value disparity between races appeared first on RealtyBizNews: Real Estate News.
When the coronavirus pandemic hit the U.S., it sent shock waves throughout the economy and peopleâs pocketbooks.
Millions have lost their jobs or taken pay cuts, causing families to make hard financial decisions. For those with emergency cash saved up, it has become an important lifeline. But itâs not always obvious how and when to spend your emergency fund. So if youâre wondering, âHow should I manage my emergency fund during a recession?ââyouâre not alone.
âSometimes [emergencies] can be foreseen, but most often they come out of the blue,â says Jim Wang, founder of personal finance blog Best Wallet Hacks. âItâs okay to use [your emergency fund]âthatâs what itâs there for.â
This economic crisis came out of the blue for many families. A May 2020 AP-NORC poll1 found that 49% of Americans say they or someone in their household has lost wages either through being laid-off, having a wage or salary reduction, working fewer hours or having unpaid time off.
In response, the U.S. government acted quickly to introduce financial relief, sending stimulus checks to taxpayers and providing qualifying businesses with loans to help them meet payroll. And in a sweeping change to a law called Regulation D, the Federal Reserve Board suspended enforcement of the monthly limit for certain types of withdrawals or transfers from savings deposits. Financial institutions may opt to suspend the six-transfer limit, but are not required to do so.
All of these factors are impacting considerations around emergency funds and may have you questioning how to use your emergency fund. To help steer you through whatever uncertainty you might be facing, Wang offers insight into when to use your emergency fund, how to manage your emergency fund when times are tough, how the Regulation D change may affect you and tips on how to build (or rebuild) your emergency fund.
To spend, or not: When to use your emergency fund
Commonly known as a last-resort reserve, an emergency fund is supposed to be there for you when youâre in a jam.
This can mean large, unexpected expenses, like when your fridge springs a leak, your stove is on the fritz or you need emergency dental work. But expenses come in all shapes, sizes and moments of your life. So how can you tell when to spend your emergency fundâespecially during a recession?
Simply put, if you think your short-term checking account isnât going to cover any essential bills or expenses, such as housing, utilities and food, then you should use your emergency fund. Products and services that arenât essential, such as TV streaming services or magazine subscriptions, fall into the âwantâ category. They should not be paid for with emergency funds.
âYou really want to make sure you keep your emergency fund for emergencies that must be addressed right now,â Wang says.
In fact, as you consider when to spend your emergency fund, you should be actively removing costly nice-to-haves from your life. Not sure what expenses to cut? Sort through your monthly statements and highlight anything that isnât absolutely required. âWhile it may be hard to cut some subscriptions, just tell yourself that itâs only temporary and you can sign back up at a later time,â Wang says.
As you decide how to use your emergency fund, Wang advises against dipping into the fund for minor or non-essential expenses with the expectation to rebuild after another paycheckâespecially during times of financial hardship or in the middle of a recession.
Make the Regulation D change work for you
In April 2020, the Federal Reserve Board suspended enforcement of the monthly six-transfer limit in Regulation D. While not a requirement, the interim rule gives financial institutions the option to waive the monthly limit. This could allow consumers more flexibility with the savings accounts containing their emergency funds. This was the first change to Regulation D transaction limits since 2009, during the financial crisis.
âYou really want to make sure you keep your emergency fund for emergencies that must be addressed right now.â
If youâve ever transferred or withdrawn money from savings or money market accounts and received a warning that youâve hit your transaction limit, youâre probably more familiar with Regulation D than you think.
âI ran into this myself a year ago,â Wang says. âIt happened to be my seventh transaction and I received a warning from my bank.â
Prior to the change, certain types of withdrawals and transfers from savings and money market accounts were limited to a total of six times per calendar month per account.
With the limit temporarily suspended, consumers may now be allowed an âunlimited number of convenient transfers and withdrawals from their savings deposits at a time when financial events associated with the coronavirus pandemic have made such access more urgent,â according to the Federal Reserve Board.
If youâre considering when to use your emergency fund, this is great news if you keep your fund in a savings or money market account. If the monthly limit has been suspended by your financial institution, you may have the flexibility to use your emergency fund to ease financial stress and cover unexpected, high-priority expenses without having to worry about the fees or account closures that can sometimes come with an excessive number of withdrawals.
To decide how best to use your emergency fund, be sure to check with your financial institution to confirm whether the monthly transaction limit on your savings or money market account has been suspended.
To provide easier access to funds during the crisis, Discover is not currently enforcing the monthly transaction limit on the number of certain types of withdrawals and transfers out of a Discover Online Savings Account or a Discover Money Market Account. You can rest assured knowing that your account wonât be at risk of closure due to excessive limited transfers out of your account.
Keep in mind that there is no set timeframe on if (or when) the transaction limit may be enforced again.
Keep saving during a recession if you can
When dealing with a financial emergency, itâs only natural to wonder if you should pull from investments, retirement funds or savings accounts not designated for emergencies.
But while it might be tempting to dip into investments and cash out, itâs important to focus on the long term as you decide when to use your emergency fund. After all, you alone canât keep the market from going up, down or sideways, but you can keep your investments on an upward trajectory. âThink about your investment as a time capsule,â Wang says. âYou can put stuff in, but you can’t take anything out.â
Opting to use your emergency fund instead of dipping into other high-priority, often long-term savings or investment vehicles will allow the accounts to grow over time without disruption.
âI have a rollover IRA that I won’t access until I’m in my 60sâthat’s over 20 years away,â Wang says. âIf I look back 20 years, we’ve had the dot-com bubble bursting, the financial crisis and the Great Recession, and we’re currently going through the coronavirus pandemic, but [my] IRA is still up because of the massive bull market between the Great Recession and this year. It’s best to leave it be because trying to time everything is going to be a lot of stress you don’t need at a time when you’re already dealing with other stresses.â
Recession-proof your budget
As you determine when to spend your emergency fund and how, youâll also want to rework your budget to reflect your new normalâespecially if youâve experienced a change in your income. To extend the life of your emergency fund and determine how to use your emergency fund more effectively, seek money-saving alternatives or work to earn short-term, supplementary income.
In addition to cutting back on expenses, try to find ways to save money in your daily life. Maybe you can cook at home instead of ordering delivery, or you can finally tame your online impulse buying. If your financial situation gets more severe, you can also seek out community resources, like a local food pantry, to offset essential expenses that may be difficult to cover at the moment.
If youâre employed and have some extra time to spare, a side hustle can turn things you already do, whether at home or at work, into extra money. This option is a great way to supplement your current income and keep up with minor expenses without having to spend your emergency fund or dip into your savings accounts.
âAfter youâve cut your expenses, you can look for ways to earn a little extra income, which may take the form of odd jobs, like walking dogs or delivering food,â Wang says. âYou can also try to find jobs that are strictly online, like transcription or becoming a virtual assistant. If youâre willing to do a little extra digging, there are plenty of opportunities.â
Rebuild your emergency fund
After youâve determined when to spend your emergency fund, youâll likely be motivated to get it back to the state it was in before the emergency. The approach to replenishing lost funds is no different than building your funds, Wang says, and it starts by establishing a financial plan that helps you reach your goal in a sustainable time period.
âExperts say you should aim to get six to 12 months of expenses into an emergency fund, but you canât be expected to get that [amount] within a month,â says Wang.
âThink about your investment as a time capsule. You can put stuff in, but you can’t take anything out.â
If your budget has $100 of surplus each month after youâve cut back on expenses, found money-saving alternatives or explored a side hustle, you can save your first $1,000 in 10 months. During that same time frame, if you can, try to find ways to cut expenses further so that you can reach that amount sooner or put your money-saving alternatives or extra income to use.
Start an emergency fund from zero
Forty-one percent of U.S. adults report that they would tap into their savings to cover an unexpected $1,000 expenseâand the higher the household income is, the more likely they are to use savings to pay for unanticipated costs, according to a January 2020 Bankrate survey.
While the task may seem daunting, especially during rough times, you should consider building your emergency fund now.
Start with a goal that makes sense for your financial situation and donât force yourself into saving up your entire emergency fund amount immediately, Wang advises. âIt comes down to treating it like a savings goal and building a surplus into your budget so you can put it in an emergency fund.â
If you donât have a surplus, make one. Do you have a winter coat you havenât worn in years or an old computer, coffee machine or television that still works but you donât use? Sell them and reap the rewards of extra cash and a roomier closet.
Your emergency fund: There when you need it
Ultimately, an emergency fund offers an important financial cushion. Not only does it help cover unexpected expenses, it can also keep you afloat during rocky times. No matter the situation, if youâve found yourself in a financial position where you need to act now, then now may be the right time to spend your emergency fund.
Now that you know how to use your emergency fund during a recession, you may want to master some more recession-proof strategies. Keep reading to find out how parents can learn how to protect their retirement savings from a recession.
1 The Associated Press-NORC Center for Public Affairs Research. May 2020. Economic Attitudes as the Country Starts to Reopen. https://apnorc.org/projects/economic-attitudes-as-the-country-starts-to-reopen/
The post Deciding When to Use Your Emergency Fund: Is Now the Right Time? appeared first on Discover Bank – Banking Topics Blog.
The COVID-19 pandemic has been the biggest overnight financial shakeup in our countryâs history. Its effects will be felt for years into the future, if not permanently. On the economic front, itâs caused a huge change in consumer spending, largely due to how peopleâs income and living/working patterns have shifted.
How Income Is Changing
According to a July report from the Congressional Research Service, the big changes in household income hasnât affected everyone equally. Those who are hardest-hit already had a lower income to begin with âÂ families with children, and non-white people. For example, 71% of parents earning under $25,000 per year have lost income, compared to only 33% of child-free households earning more than $200,000 per year.Â
In other words, the rich are staying rich (and even getting richer), while the poor are getting poorer. And since these high-earners are increasingly working from home, itâs caused massive shake-ups in consumer spending, with winners and losers on all fronts.
Top Spending Categories of 2020
The average family earned $68,703 (or $5,725 per month) during 2019, according to Census data. We donât yet know what itâll be for 2020, although itâll almost certainly be lower when averaged across the entire population, including those with and without income losses. Hereâs how the loss in income is affecting what people are spending their money on.Â
Pre-Pandemic: In 2019, the average household spent $579 on alcohol, according to the Bureau of Labor Statistics (BLS).
Pandemic: In April of 2020, alcohol spending was up by approximately 50%, according to an analysis from The New York Times.
With everyone stuck at home and a looming sense of existential doom everywhere you look, itâs no wonder that spending on alcohol has increased. The way people are buying their alcohol is shifting, too, according to a May 2020 Nielsen report. In-store sales of booze jumped by around 26% compared to the same time a year ago. Online sales were even more popular, with a 477% jump in direct-to-your-door delivery service.
In addition, people shifted to buying larger packages of alcohol, with a 20% jump in sales of 24- and 30-packs of beer and cider, and a 2% decrease in sales of six-packs. Sales of boxed wine in particular were also up by 44% from the previous year, as was 1.75L Costco-sized jugs of hard liquor, with a 47% increase.
Pre-Pandemic: The average family spent $4,643 on groceries in 2019, according to the BLS.
Pandemic: Grocery spending is up by 10%, according to an October report by The New York Times.
Whether itâs the sourdough bread craze or cozy comfort foods, many people have gotten a crash course in cooking from home over the past few months. And although groceries have always been a big part of the household budget (especially if you have teenagers), theyâre higher now than theyâve ever been before.Â
However, you can get your groceries in a lot of ways, and some are booming more than others right now. For example, an earlier survey from The New York Times in April showed that while spending at supermarkets was largely the same compared to the prior year, spending at online grocers was up by 80%, food delivery spending was up by 50%, and spending on meal kits surged by 40%. This isnât surprising, as many people are still (rightfully) wary of packed grocery stores and are instead opting for the convenience of ready-to-cook-from-home meals.
Pre-Pandemic: The average sales price of a home was $278,800 in August 2019, according to the National Association of Realtors (NAR).
Pandemic: The average sales price of a home was 11% higher â $310,600 â in August 2020, according to the (NAR).
Youâd think that the largest bombshell in U.S. economic history would derail the real estate markets that were already set off-course by the 2008 recession. So far (and surprisingly so), that hasnât been the case. Despite the world burning (literally, if you live on the West coast), home prices continue to chug along at an increasing pace.Â
Thereâs been a lot of speculation about why this is. Some experts suggest that high-paid tech workers (those least likely affected by the pandemic), are now free of their tether to high cost-of-living areas and are thus increasingly flooding out into the suburbs along with all of their cash. In particular, properties that are well-designed for working from home (such as those with extra rooms that can double as offices) are in particularly high demand.
Areas Where Consumer Spending Dropped
As weâve seen, some industries have picked up. But by and large, consumer spending is down, and here are some of the major industry drops.
Pre-Pandemic: The average family spent $2,037 on their summer vacation in 2019, according to an Allianz Insurance survey.
Pandemic: Travel spending is down by 57%, according to October 2020 numbers from Status Money.
Many of the highest-price travel is done overseas and at expensive places, like Disney World, and on cruise ships. Obviously, those things are out for this year.
So although you canât take that expensive Paris vacation youâve always been dreaming of right now, thatâs not stopping a lot of people. In June 2020, the American Automobile Association (AAA) predicted that 97% of trips would be taken by car, either locally or around the U.S. After all, there are still many world-class natural wonders to see right here at home, whether itâs Yosemite, Old Faithful, or hiking along the Appalachian Trail.
Pre-Pandemic: The average U.S. family spent $1,883 on apparel during 2019, according to the BLS.
Pandemic: Clothing spending was down by around 60% in April, according to an analysis from The New York Times.
With so many people working from home via Zoom, you really only need clothes on the top half of your body (be careful not to stand up from your desk though!). Even so, with so many places closed down and no one to see you, people just arenât spending as much on clothes these days as they used to.
Some of this spending has recovered. For example, while The New York Times recorded a decline of around 60% on clothing spending in April, it had recovered a bit to just a 20% decline by October. Sales of cosmetics were also down by 14%, at least for cosmetics brand LâOreal. According to a JP Morgan analysis, certain cosmetics were particularly hard-hit, with fragrances, luxury makeup, and professional supplies down by 25%.
Pre-Pandemic: The average U.S. family spent $3,526 on dining out in 2019, according to the BLS.
Pandemic: Restaurant spending is down by 15%, according to The New York Times.
COVID-19 is particularly transmissible in enclosed environments with a lot of packed people that are touching their faces. Itâs no wonder that restaurants have emerged as a flare in the debate between safety vs. the economy. After all, the restaurant industry alone employs 15.6 million people, according to the National Restaurant Association.
But just as with anything else, the impact isnât equally spread across all types of restaurants. According to a May survey by McKinsey & Company, casual and fine dining saw the biggest declines of 70% to 85%, while pizza companies actually did better than usual, with up to a 5% increase in sales from the previous year.
How Spending Will Change Over the Holidays
Last year, the average consumer spent $1,048 on holiday shopping, according to the National Retail Federation. This year, a survey by Power Reviews shows that 73% of people expect to spend about the same amount on holiday shopping as last year, despite the present state of the economy.
One thing that is changing, though, is that more people will shop online this year, and earlier, too. According to the same Power Reviews survey, 64% of people are planning on doing more online shopping this year, and around 25% of people are planning on getting an early head start. This is largely due to concerns about inventory and shipping delays.
The post Consumer Spending Habits Are Changing â What to Know appeared first on Good Financial CentsÂ®.
What will 2020 bring?Â These four trends are expected to impact luxury buying and selling in the new year and decade ahead.Â
1. Luxury Housing Holds Steady
This year, expect âguarded optimismâ to replace last yearâs uncertainty over fears about a global economic slowdown, a U.S.-China trade war and a potential U.S. recession, according toÂ Mansion Global. This is encouraging news for luxury real estate, which has traditionally been tied to global economic growth, yet is generally more insulated from market fluctuations. Many U.S. luxury housing meccas are generally stable, while some high-end hotspots like Los Angeles and Miami could be poised to rise or make a comeback in 2020.Â
2. The Rise of the Mid-Sized Luxury MarketÂ
WhenÂ realtor.comÂ released its annual list of the hottest markets last December, surprise cities like Boise, McAllen, Texas and Tucson topped the list. “The cities that we expect to do best in 2020 are not necessarily big, fancy, coastal cities, but secondary markets where the job market is still pretty good but housing is affordable,” said Danielle Hale, chief economist of realtor.com. Affluent buyers from high-cost cities want a good deal as much as anyone â so we expect to see midsized cities with stable and solid economies and more affordable housing as the top performers in 2020.Â
3. Less Square Footage
âLessâ is becoming âmoreâ â even in the highest price segments. Consistent withÂ NAHBÂ data that found the average new single-family home size has been trending lower since 2015, realtors in some luxury markets are reporting that a growing number of affluent buyers are willing to “trade space for place.â This is especially true in the luxury condo segment, where buyers are increasingly getting flexible on square footage if a building has amenities or hospitality programs attached to it.Â
4. Urbanization of the âBurbs, Emergence of âHipsturbiasâ
People are moving back to the cities, itâs true â but as millennials start families another phenomenon has emerged, according to Emerging Trends in Real Estate 2020, a report released by Urban Land Institute and PwC: âhipsturbias.â Hipsturbias are suburban markets with hip or cool live/work/play environments offering walkability and/or transit access. Brooklyn is a prototype, but hipsturbia examples are beginning to crop up across the U.S. â from New Jersey communities such as Hoboken, Maplewood, and Summit, to New Yorkâs Yonkers and New Rochelle, to Evanston, Illinois and further out west â Santa Clara, California, and Tempe, Arizona.
Which trend do you see impacting your community?
The post Luxury Real Estate Trends to Watch in 2020Â first appeared on Century 21Â®.
Inflation measures how much an economy rises over time, comparing the average price of a basket of goods from one point in time to another. Understanding inflation is an important element of investing.
The Bureau of Labor Statistics CPI Inflation Calculator shows that $5.00 in September 2000 has the purchasing power equal to $7.49 in September 2020. To continue to afford necessities, your income must pace or rise above the rate of inflation. If your income didnât rise along with inflation, you couldnât afford that same pizza in September 2020 â even if your income never changed.
Inflation represents a real risk for investors as it could erode the principal value of your investment.
For investors, inflation represents a real problem. If your investment isnât growing faster than inflation you could technically end up losing money instead of growing your wealth. Thatâs why many investors look for stable and secure places to invest their wealth. Ideally, in investment vehicles that guarantee a return thatâll outpace inflation.
These investments are commonly known as âinflation hedgesâ.
5 Top Inflations Hedges to Know
Depending on your risk tolerance, you probably wouldnât want to keep all of your wealth in inflation hedges. Although they might be secure, they also tend to earn minimal returns. Youâll unlikely get rich from these assets, but itâs also unlikely youâll lose money.
Many investors turn to these secure investments when they notice an inflationary environment is gaining momentum. Hereâs what you should know about the most common inflation hedges.
Some say gold is over-hyped, because not only does it not pay interest or dividends, but it also does poorly when the economy is doing well. Central banks, who own most of the worldâs gold, can also deflate its price by selling some of its stockpile. Goldâs popularity might be partially linked to the âgold standardâ, which is the way countries used to value its currency. The U.S. hasnât used the gold standard since 1933.
Still, goldâs stability in a crisis could be good for investors who need to diversify their assets or for someone whoâs very risk-averse.
If you want to buy physical gold, you can get gold bars or coins â but these can be risky to store and cumbersome to sell. It can also be hard to determine their value if they have a commemorative or artistic design or are gold-plated. Another option is to buy gold stocks or mutual funds.
Get Started With Oxford Gold Group
Is gold right for you? Youâll need to determine how much risk youâre willing to tolerate with your investments since gold offers a low risk but also a low reward.
Physical asset: Gold is a physical asset in limited supply so it tends to hold its value.
Low correlation: Creating a diversified portfolio means investing in asset classes that donât move together. Gold has a relatively low correlation to many popular asset classes, helping you potentially hedge your risk.
Performs well in recessions: Since many investors see gold as a hedge against uncertainty, it is often in high demand during a recession.
No dividends: Gold doesnât pay any dividends; the only way to make money on gold is to sell it.
Speculative: Gold creates no value on its own. Itâs not a business that builds products or employs workers, thereby growing the economy. Its price is merely driven by supply and demand.
Not good during low inflation: Since gold doesnât have a huge upside, during periods of low inflation investors generally prefer taking larger risks and will thereby sell gold, driving down its price.
2. Real Estate Investment Trusts (REITs)
Buying real estate can be messy â it takes a long time, there are many extra fees, and at the end of the process, you have a property you need to manage. Buying REITs, however, is simple.
REITs provide a hedge for investors who need to diversify their portfolio and want to do so by getting into real estate. Theyâre listed on major stock exchanges and you can buy shares in them like you would any other stock.
If youâre considering a REIT as an inflation hedge youâll want to start your investment process by researching which REITs youâre interested in. There are REITs in many industries such as health care, mortgage or retail.
Learn More About REITs with Realty Mogul
Choose an industry that you feel most comfortable with, then assess the specific REITs in that industry. Look at their balance sheets and review how much debt they have. Since REITs must give 90% of their income to shareholders they often use debt to finance their growth. A REIT that carries a lot of debt is a red flag.
No corporate tax: No matter how profitable they become, REITs pay zero corporate tax.
High dividends: REITs must disperse at least 90% of their taxable income to shareholders, most pay out 100%.
Diversified class: REITs give you a way to invest in real estate and diversify your assets if youâre primarily invested in equities.
Sensitive to interest rate: REITs can react strongly to interest rate increases.
Large tax consequences: The government treats REITs as ordinary income, so you wonât receive the reduced tax rate that the government uses to assess other dividends.
Based on property values: The value of your shares in a REIT will fall if property values decline.
3. Aggregate Bond Index
A bond is an investment security â basically an agreement that an investor will lend money for a specified time period. You earn a return when the entity to whom you loaned money pays you back, with interest. A bond index fund invests in a portfolio of bonds that hope to perform similarly to an identified index. Bonds are typically considered to be safe investments, but the bond market can be complicated.
If youâre just getting started with investing, or if you donât have time to research the bond market, an aggregate bond index can be helpful because it has diversification built into its premise.
Of course, with an aggregate bond index you run the risk that the value of your investment will decrease as interest rates increase. This is a common risk if youâre investing in bonds â as the interest rate rises, older issued bonds canât compete with new bonds that earn a higher return for their investors.
Be sure to weigh the credit risk to see how likely it is that the bond index will be downgraded. You can determine this by reviewing its credit rating.
Diversification: You can invest in several bond types with varying durations, all within the same fund.
Good for passive investment: Bond index funds require less active management to maintain, simplifying the process of investing in bonds.
Consistency: Bond indexes pay a return thatâs consistent with the market. Youâre not going to win big, but you probably wonât lose big either.
Sensitive to interest rate fluctuations: Bond index funds invested in government securities (a common investment) are particularly sensitive to changes to the federal interest rate.
Low reward: Bond index funds are typically stable investments, but will likely generate smaller returns over time than a riskier investment.
4. 60/40 Portfolio
Financial advisors used to highly recommend a 60/40 stock-bond mix to create a diversified investment portfolio that hedged against inflation. However, in recent years that advice has come under scrutiny and many leading financial experts no longer recommend this approach.
Instead, investors recommend even more diversification and whatâs called an âenvironmentally balancedâ portfolio which offers more consistency and does better in down markets. If youâre considering a 60/40 mix, do your research to compare how this performs against an environmentally balanced approach over time before making your final decision.
Learn More About 60/40 Portfolios with Facet
Simple rule of thumb: Learning how to diversify your portfolio can be hard, the 60/40 method simplifies the process.
Low risk: The bond portion of the diversified portfolio serves to mitigate the risk and hedge against inflation.
Low cost: You likely donât have to pay an advisor to help you build a 60/40 portfolio, which can eliminate some of the cost associated with investing.
Not enough diversification: Financial managers are now suggesting even greater diversification with additional asset classes, beyond stocks and bonds.
Not a high enough return: New monetary policies and the growth of digital technology are just a few of the reasons why the 60/40 mix doesnât perform in current times the same way it did during the peak of its popularity in the 1980s and 1990s.
5. Treasury inflation-protected securities (TIPS)
Since TIPS are indexed for inflation theyâre one of the most reliable ways to guard yourself against high inflation. Also, every six months they pay interest, which could provide you with a small return.
You can buy TIPS from the Treasury Direct system in maturities of five, 10 or 30 years. Keep in mind that thereâs always the risk of deflation when it comes to TIPS. Youâre always guaranteed a minimum of your original principal at maturity, but inflation could impact your interest earnings.
Low risk: Treasury bonds are backed by the federal government.
Indexed for inflation: TIPS will automatically increase its principle to compensate for inflation. Youâll never receive less than your principal at maturity.
Interest payments keep pace with inflation: The interest rate is determined based on the inflation-adjusted principal.
Low rate of return: The interest rate is typically very low, other secure investments that donât adjust for inflation could be higher.
Most desirable in times of high inflation: Since the rate of return for TIPS is so low, the only way to get a lot of value from this investment is to hold it during a time when inflation increases and you need protection. If inflation doesnât increase, there could be a significant opportunity cost.
The Bottom Line
Inflation represents a real risk for investors as it could erode the principal value of your investment. Make sure your investments are keeping pace with inflation, at a minimum.
Inflation hedges can protect some of your assets from inflation. Although you donât always have to put your money in inflation hedges, they can be helpful if you notice the market is heading into an inflationary period.
The post 5 Best Hedges in the Face of Inflation appeared first on Good Financial CentsÂ®.
Austerity policies are nothing new. But talk about them in the news has recently escalated. In response to its ongoing debt crisis, the Greek government is preparing to implement austerity measures aimed at helping the country regain its financial footing. If you didnât major in economics or you have no clue what austerity means, read on to find out how this fiscal program works.
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Austerity: A Definition
Trust us, austerity isnâtas complicated as it sounds. Austerity is a type of economic policy that governments use to deal with budget deficits. A country faces a deficit whenever itâs using more money than itâs earning from tax dollars.
By taking on an austerity package, a government hopes to reign in its spending, improve the status of its economy and avoid defaulting on its unpaid debt. Governments usually take on austerity measures in order to appease their creditors. In exchange, these lenders agree to bail out countries and allow them to borrow more money.
If you look up the word austere in the dictionary, youâll see that it means severe, grave, hard, solemn and serious. Indeed, austerity is nothing to joke about.
Austerity plans normally involve increases in different taxes, (property taxes, income taxes, etc.) budget cuts or a push to incorporate both. Government workers could lose their jobs or see their wages and benefits either decline or become stagnant. Hiking up interest rates, adding travel bans and keeping prices at a fixed level could be other strategies put in place to reduce spending.
Naturally, austerity measures typically arenât viewed in the best light because they mean that there might be fewer government programs available to the public. Aid for veterans and low-income families, healthcare coverage and pensions are some of the benefits that normally take a hit when a countryâs using an austerity package. Government services that arenât eliminated might not be as comprehensive or as beneficial as they once were.
As you can see, in an austere environment, conditions are tighter overall. Historically, austerity has been implemented in the US during tough times including World War I, World War II and the Great Recession of 2008.
Greeceâs new austerity package â which government lawmakers finally accepted in July 2015 â will feature less government funding, higher taxes and cuts to pension plans. As a result of this deal, the country was allowed to begin talks with its creditors about a third bailout.
Related Article: All About the Greek Debt Crisis
The Problems With Government Austerity
Experts on the economy tend to go back and forth about how effective austerity can be. Some believe that instead of turning to austerity, the government should pump out more money and borrow as much as possible if an economy is on the rocks.
From a political standpoint, austerity is often controversial and results in riots and demonstrations. Anti-austerity protests erupted in Greece, where quite a few folks say that past austerity programs have only made social and economic conditions worse.
Beyond slowing down the economy, an austerity bill can cause a country to remain in its debt crisis, particularly if itâs in the midst of a recession. As fiscal austerity decreases spending, GDP can go down while unemployment goes up. Consumers can get nervous and stop spending and investing their own money.
In short, austerity policies can make life even more difficult for people who are already struggling. Thatâs why governments tend to turn to them as a last resort if other strategies arenât working.
Why Austerity Might Not Be So Bad
Notable European creditors have argued that austerity can be beneficial to a countryâs long-term economic state. For instance, the International Monetary Fund (IMF) has previously reported that austerity has done more damage than anticipated. But the European Central Bank released a paper saying that austerity has been helpful, at least for some of the weaker eurozone countries.
In fact, austerity has helped strengthen the economies in European countries like Latvia and Iceland. Although Spainâs unemployment remains high, its economy is in better shape overall. Ireland has made considerable progress as well toward rebuilding its economy.
Proponents of austerity policies say that they can make investors feel more optimistic when a country is being run more responsibly. Austerity has the potential to bring a shrinking economy back to life as everyday citizens invest in the private sector instead of relying on support from the federal government.
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The US used austerity measures between 2010 and 2014. Not only were our policies harsher than those employed by the governments in the UK and other European nations, but our economy fared better than theirs.
The point of austerity is to tighten the governmentâs belt, bring a countryâs debt back down to a more manageable level and stimulate an economy that has stopped growing. Countries generally try to meet these goals by cutting spending and raising taxes.
The debate over whether austerity works continues but one common theme has emerged. Timing matters. Some critics suggest that cutting too much too quickly during a recession can be painful. When introduced more slowly, however, (or when the economy is doing very well,) austerity measures can turn things around.
Before the coronavirus reached the U.S., unemployment was low and few could have anticipated a global pandemic. However, as the pandemic and ensuing recession took hold, a record-breaking number of people filed for unemployment benefits to stay financially afloat.
âCOVID-19 led to an incredible number of American workers being without work,â says Julia Simon-Mishel, an unemployment compensation attorney. âAnd itâs caused a huge need for individuals to file for unemployment insurance.â
Unemployment insurance, or unemployment benefits, can offer an essential lifeline. But if youâve never accessed these benefits before, you may have questions about how they work. You might also be asking: What do I do when my unemployment benefits run out and Iâm still unemployed?
This article1 offers tips about what you need to know about filing an unemployment claim. It also addresses the following questions:
How do you prepare for the end of unemployment benefits?
Can your unemployment benefits be extended?
What can you do when unemployment runs out?
Can you refile for unemployment after it runs out?
If youâre just getting ready to file or need a refresher on the basics of unemployment benefits, read on to have your questions answered.
If youâre already collecting benefits and want to know what happens once you reach the end of the benefit period, skip ahead to âSteps to take before your unemployment benefits run out.â
Common questions about unemployment benefits
Experiencing a job loss is challenging no matter what. Keep in mind that youâre not alone, and remember that unemployment benefits were created to help you.
While theyâre designed to provide financial relief, unemployment benefits are not always easy to navigate. Hereâs what you need to know to understand how unemployment benefits work:
What are unemployment benefits?
Unemployment insurance provides people who have lost their job with temporary income while they search for and land another job. The amount provided and time period the benefits last may vary by state. Generally, most states offer up to half of a personâs previous wages in unemployment benefits for 26 weeks or until you land another full-time job, whichever comes first. Requirements and eligibility may vary, so be sure to check your stateâs unemployment agency for guidance.
How do you apply for unemployment benefits?
Depending on where you live, claims may be filed in person, by phone or online. Check your state governmentâs website for details.
Who can file an unemployment claim?
This also may vary from state to state, but eligibility typically requires that you lost your job or were furloughed through no fault of your own, in addition to meeting work and wage requirements. During the coronavirus pandemic, the government loosened restrictions, extending unemployment benefits to gig workers and the self-employed.
When should you apply for unemployment benefits?
Short answer: As soon as possible after you lose your job. âIf you are someone who has had steady W2 work, itâs important that you file for unemployment the moment you lose work,â Simon-Mishel says. The longer you wait to file, the longer youâre likely to wait to get paid.
When do you receive unemployment benefits?
Generally, if you are eligible, you can expect to receive your first benefit check two to three weeks after you file your claim. Of course, this may differ based on your state or if thereâs a surge of people filing claims.
2020 enhancements to unemployment benefits for freelance and contract workers
In early 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In addition to other benefits, the CARES Act created a new program called Pandemic Unemployment Assistance. This program provides unemployment benefits to independent contractors and other workers who were typically ineligible. That means that if you donât have steady W2 incomeâfor instance, freelance and contract workers, those who file 1099s, farmers and the self-employedâyou still may qualify for unemployment benefits.
âThat program is a retroactive payout,â Simon-Mishel says. âIf youâre just finding out about that program several months after losing your job, you should be able to file and get benefits going back to when you lost work.â
Because legislation affecting unemployment benefits continues to evolve, itâs important that you keep an eye out for any additional stimulus programs that can extend unemployment benefits. Be sure to regularly check your stateâs unemployment insurance program page for updates.
“Itâs really important to keep on top of all the information out there right now and be aware of what benefits are available to you.”
Steps to take before your unemployment benefits run out
In a perfect world, your job leads would become offers long before you reached the end of your unemployment benefits. But in reality, thatâs not always the case.
If youâre still unemployed but havenât yet exhausted your benefits and extensions, you may want to prepare for the end of your unemployment benefits as early as possible so you donât become financially overwhelmed. Here are four tips to help you get through this time:
Talk to service providers
Reaching out to your utility service providers like your gas, electric or water company is one of the first steps John Schmoll, creator of personal finance blog Frugal Rules, suggests taking if youâre preparing for the end of unemployment benefits.
âA lot of times, either out of shame or just not knowing, people donât contact service providers and let them know what their situation is,â Schmoll says. â[Contact them to] see what programs they have in place to help you reduce your spending, and basically save as much of that as possible to help stretch your budget even further.â
To help prepare for the end of your unemployment benefits, a few months before your benefits end, Schmoll suggests cutting back spending as much as possible, focusing only on necessities.
âIf you can try and save something out of the benefits that youâre receiving while youâre receiving themâit doesnât matter if itâs $10 or $20âthatâs going to help provide some cushion,â Schmoll says. Keep those funds in a separate account if you can, so youâre not tempted to spend them. That way youâre more prepared in case of an emergency.
If you hunkered down during your period of unemployment and were able to save, try to resist the urge to splurge on things that arenât necessary.
âThere might be temptation to overspend, but curtail that and focus on true necessities,â Schmoll says. âThat way when [or if] you receive an extension on your benefits, you now have that extra money saved.â
If you find that your savings and benefits arenât covering your expenses, and youâre reaching a point where you no longer qualify for benefits, look into other new benefit programs or features designed to help during times of crisis.
For example, there are programs across the country to assist people with rent or mortgages, Simon-Mishel says. Those programs are generally designed to keep those facing financial hardship from losing their home or apartment. You may need to show that you are within the programsâ income limits to qualify, or demonstrate that your rent is more than 30 percent of your income. These programs vary widely at the state and even city level, so check your local government website to see what might be available to you.
As you prepare for the end of your unemployment benefits, explore which government benefits or government agency may be best suited for your needs.
Keep up with the news
During economic downturns, government programs and funds often change to keep up with evolving demand.
âItâs really important to keep on top of all the information out there right now and be aware of what benefits are available to you,â says Simon-Mishel. âYou should closely pay attention to the social media of your state unemployment agency and local news about other extension programs that might be added and that you might be eligible for.â
Options for extending your unemployment benefits
If youâre currently receiving benefits, but theyâll be ending soon, youâre likely wondering what to do when your unemployment runs out and asking if your unemployment benefits can be extended. Start by confirming when you first filed your claim because that will determine your benefit end date.
If youâre wondering, âCan you refile for unemployment after it runs out?â the answer is yes, but youâll have to wait until your current âbenefit yearâ expires. Note that a benefit year is 12 months from when you file a claim. If you filed at the beginning of June, for example, you generally can’t file again until the beginning of the following June.
You may get 26 weeks of unemployment benefits, depending on your stateâs rules at the time. Most states extended the payout period to 39 weeks in the wake of the COVID-19 crisis. Check your stateâs website for the particulars on what to do when your unemployment runs out.
If your claim is still active but youâll be in need of additional financial relief after your unemployment benefits run out, here are your options:
File for an unemployment extension
During extraordinary economic times, such as the coronavirus pandemic, the federal government may use legislation like the CARES Act to offer people more benefits for a longer period of time, helping many people concerned about whether unemployment benefits can be extended.
For example, in 2020, for most workers who exhaust, or receive all of, their unemployment benefits, a 13-week extension should automatically kick in, Simon-Mishel says. This would bring you up to 39 weeks total. However, if more than a year has passed since you originally filed and you need the extension, you will likely need to file a short application provided by the government. Details vary by state.
As youâre determining what to do when your unemployment runs out, reach out to your unemployment office. Itâs important to do this before your benefits expire so you can avoid a missed payment. You can also confirm youâre eligible and that you can refile for unemployment after it runs out.
Ask about the Extended Benefits program in your state
Can unemployment benefits be extended beyond that? In periods of high unemployment, you may qualify for a second extension, depending on your state.
âAfter those [first] 13 weeks, many states have added a new program called Extended Benefits that can provide another 13 to 20 weeks of unemployment when a state is experiencing high unemployment,â Simon-Mishel adds. This means you may be able to receive a total of up to 59 weeks of unemployment benefits, including extensions. The total number of weeks of unemployment you may receive varies based on your state and the economic climate.
Itâs hard enough keeping up with everything as you prepare for the end of unemployment benefits, so donât worry if you donât have your stateâs benefits program memorized. Visit your stateâs unemployment insurance program page to learn more about what benefits are available to you.
Beyond unemployment benefits
While life and your finances may seem rocky now, know that youâre not alone. Remember that there are resources available to help support you, and try to take things one day at a time, Schmoll says.
âRealize that at some point your current situation will improve.â
If you find that your benefits arenât covering all of your expenses, now may be the time to dip into your cash reserve. Explore these tips to determine when itâs time to use your emergency fund.
1 This article is not legal advice and should not be construed as such. Eligibility for unemployment benefits may be impacted by variations in state programs, changes in programs, and your circumstances. If you have questions, you should consider consulting with your legal counsel, at your expense, or seek free assistance from your local legal aid organization.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post How to Prepare for the End of Your Unemployment Benefits appeared first on Discover Bank – Banking Topics Blog.