Your Financial Future: Many ‘overwhelmed’ by finances
Half of U.S. adults in a recent survey said they are overwhelmed by their finances.
This study completed in April was commissioned by Bankrate. Most people would probably agree that things have only gotten worse since then. A large number of the survey participants said these financial issues have affected their well-being.
Overwhelmed was described as “anxious,” “worried” or “stressed” in the survey. Nearly one-third of men felt like this, while about a one-quarter of women respondents answered that way. The frequency was worse among younger millennials.
Inflation has been running at 40-year high, so many Americans can barely remember when it was this bad. To combat this inflation, the Federal Reserve has been raising interest rates, and is expected to do so again this week. This makes borrowing more expensive, and can price many consumers out of the market. A monthly mortgage payment on a house has jumped hundreds of dollars a month. Over 30 years, that is a lot of money. Cars were already expensive because of a computer chip shortage, but financing now is much more expensive.
The stock market has also been very volatile lately. It is in “bear country” which means it is at least 20% down. Many investors are afraid to look at their monthly statements. Boomer and older investors who are either retired or close to being so are at greater risk. When you must start withdrawing money either for income or to meet required minimum distributions, you may be subject to sequence of returns risk. This can be very costly.
Younger investors need to keep contributing and not stop because of current market conditions. In doing so, they will be dollar-cost averaging if they keep contributing the same amount and will buy more shares for the same dollar contribution. If you receive a match in a 401k plan, it is important to contribute and not let free money disappear.
Bond values are going down on many people’s investment statements because the FED is raising interest rates. This always happens as rates rise. Many people do not realize that what is supposed to be their safe money is not so safe. Some people have too much money sitting in low-interest bank accounts and are losing money safely in this high-inflation environment. There may be some better alternatives.
The survey found that 69% of respondents were concerned and worried about facing an unexpected expense. This is why it is very important to have sufficient emergency funds. Many advisors suggest that you keep a six-to-nine-month supply of emergency money.
When making a purchase, it is important to try and pay with cash. All interest rates are rising, but the worst is credit card rates. These are unsecured by any collateral and financial institutions charge high rates of interest. Never only pay the minimum monthly payment. Your balance will not go down very fast, and you will pay a lot of interest charges.
Make smart financial choices. Look at your financial life in a holistic way and you can be one of the American’s who is not “overwhelmed.”
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.