Best of times, worst of times: saving, borrowing, investing and taxing in a stormy economy

These are tough times for the US economy, which means they’re tough for our personal finances as well. So my Friends Talk Money podcast co-hosts Terry Savage and Pam Krueger and I posted an episode to offer timely, non-partisan advice on saving, borrowing, investing, and taxes. I thought I would share a few highlights.

You can listen to the entire 20-minute “Friends Talk Money” episode anywhere you get your podcasts.

With a nod to Charles Dickens, personal finance columnist and author Savage said we were in the middle of a “tale of two countries”. You know, the best of times / the worst of things.

“On the one hand, we have very good economic news on growth and jobs. And, of course, the stock market – as we record it, anyway – is hitting new all-time highs, ”Savage said.

Krueger, the founder of controlling financial advisers company Wealthramp and a public television host, concurred with this opinion. “The economy fell off a cliff last year. Now look where we are, ”she said. The United States created nearly 950,000 jobs in July, Krueger noted, and Americans are spending more and more, shopping, eating out and traveling.

See: Unemployment claims drop to pandemic low of 348,000 in companies still hiring despite delta

Storm clouds over the economy

“On the flip side,” Savage said, “we have people in America who are worried about things like foreclosures and evictions and student loan repayments when the moratorium ends.” Unemployment benefits are also running out for many, she noted.

Consumer prices rose 5.5%, which is difficult for many Americans. But higher inflation also means that Social Security recipients could see their monthly benefits increase by 6% in 2022.

This is why, I say, personal finances today are even more personal than normal. The way each of us manages financially is very different. Some of us have been fortunate enough to be able to keep or get new jobs and earn a decent income. Others don’t. Some of us saved money; others don’t.

“It’s a big economy and there are so many uncertainties about the future,” Savage said. “So if you’re worried about the economy, you’re not alone. The pros are also worried.

Any advice from the three of us? Savage put it right: diversify your investments with caution, hedge against possible financial problems by increasing your savings if you can, and start thinking about preparing for possible changes in the economy and the tax system. Americans.

The Federal Reserve has kept interest rates low with a cautious eye on rising inflation. But the future of inflation seems strongly linked to the COVID-19 pandemic. If the Delta variant continues to make matters worse, higher prices for airline tickets, hotels, and restaurant meals may moderate. If the vaccination rate goes up and the coronavirus is less of a threat, people could increase their spending and inflation could rise.

What about interest rates?

Interest rates should start to rise, however. at one point. So, Savage said, “wait a minute before you lock your money [in the bank] in nothing more than a money market account. Instead, wait for interest rates to rise, then lock in higher yields on bank CDs.

Conversely, Savage advised “please refinance your 30-year mortgage” because, she said, “I can’t imagine we will see much lower rates. “

The huge rise in the stock market in 2021 (the Dow DJIA,
+ 0.65%
gained around 15%) means now is the time to assess your investments.

If you’re on the stock market, Krueger said, “Take a look at your own positions. They swelled. You may not even realize that you now own a lot more stocks of large US companies than you ever expected. “

Maybe it’s time to diversify your investments, reduce the amounts you have in stocks, and increase your holdings in things like savings, bonds, and real estate.

Further, Krueger asked, “Do you really have a savings cushion? If not, now is the time to create one and take a close look at your investments, perhaps in consultation with a financial advisor.

See: More Americans have saved $ 1 million for retirement than ever

Be careful with tax movements

However, don’t do anything rash lest your taxes go up.

While President Biden has proposed raising the maximum rate of capital gains tax, this is still rhetoric. And the chances are slim that Congress will approve an increase in income taxes, except perhaps for the wealthiest Americans. I was a correspondent for Money magazine in Washington for five years and learned that a lot can happen on the tax front between what a President proposes and what Congress ultimately does, if at all.

Read also : How can I be sure that the money I saved will last throughout my retirement?

Krueger said, “The question is, when should you start planning for higher taxes? … Right now, you can’t control what may or may not happen from Washington and policymakers.”

Instead, she suggested, “start looking at how you invest and how much you save and how you save. Now is the time to prepare for things you can control.

Richard Eisenberg is senior web editor for Next Avenue’s Money & Security and Work & Purpose channels and editor of the site. He is the author of “How to Avoid a Mid-Life Financial Crisis” and has served as the personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch.

This article is reproduced with permission from, © 2021 Twin Cities Public Television, Inc. All rights reserved.

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