There have been countless news stories about how Millennials are different than previous generations, including their relationship with debt. The principles on debt – the difference between good and bad debt and how to make sure your money works for you – haven’t changed. What has changed are the ways to prepare for retirement and the mountains of student debt that many millennials are struggling under. This large debt slows down their ability to build toward their financial independence, which is a road that many have to pave on their own.
First off, preparing for financial independence has changed. One’s golden years are no longer secured by a pension. More and more people are accepting that preparing for retirement rests solely on their shoulders. The look of retirement has changed as well, with some expecting to continue working because they want to, not because they need to, as well as some embracing the FIRE movement and planning to retire well before 65. For many, the financial landscape that people are planning for has changed.
One of the things that hasn’t changed is what we have historically considered “bad debt”. Credit card debt, high car payments and other depreciating assets, can be harmful to your bottom line. These expenses don’t increase your net worth and often simply distract you from your long-term goals of financial independence. It’s a good idea to keep expenses in this category to a minimum.
Good debt, on the other hand, is money you borrow to ultimately increase your wealth. Historically, student loans for higher education and real estate have fallen under this category as they were seen to be investments that would bring sizable returns in the future. As with any investment, though, you need to critically examine your likely return to make the right decisions. If you are looking at taking student loans for higher education, the goal is for that education to secure a position that will provide you a greater salary. However, if you take out a $100,000 loan to enter a profession that generally generates an annual $40,000 salary, which doesn’t seem to be the best return on your investment. This is the lesson Millennials are laboring under. With $1.5 trillion in outstanding student loan debt[i], Millennials are struggling to make ends meet, let alone build for the future.
Like a series of dominoes, consequences of financial decisions can be far-reaching. Yes, real estate can be a building block to your financial freedom. Yet, many Millennials are delaying buying a home due to their significant outstanding student loan debt[ii]. Additionally, if you’re looking to buy a house that requires a mortgage that leaves you with little funds to contribute to savings or other investments, it may no longer be a good debt option.
In the end, everyone should be looking for ways to invest in their future. You need to be mindful about your money and how it’s working for you. While it’s good to make sure that you’re not throwing your money away, you also want to make sure that your debt is worth the expected rate of return. Everyone has multiple goals, both short-term and long-term. If you plan the right way, you can make sure that the money you have today can work for your dreams for tomorrow.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.
As the cost of living rises, households worldwide feel the squeeze. Inflation impacts everything from groceries to housing to healthcare, and families struggle to make ends meet as they stretch their budgets to the limit.
Recent statistics show the inflation rate in the United States has risen to its highest level in over four decades. The Consumer Price Index (CPI) has increased by 7% over the past year alone. Inflation is a persistent increase in the prices of goods and services over time, leading to a decline in purchasing power of money. It affects the economy in many ways, including households, as it erodes their buying power, making it difficult to afford basic necessities.
A mature diverse couple shakes hands with a financial advisor.
How Is Inflation Impacting Households Today?
Inflation is affecting families significantly, with prices of goods and services rising rapidly. One area where inflation has a noticeable impact is the cost of groceries. According to the U.S. Department of Agriculture, food prices have increased by 6% in the past year.
Inflation is also impacting the cost of housing. According to the National Association of Home Builders, lumber has increased by more than 167% since April 2020, making building, renting or renovating homes much more expensive.
Other areas where inflation impacts households include transportation, healthcare and energy costs. With gas prices rising, transportation costs are increasing making it more expensive for families to commute to work or travel.
Healthcare costs are also rising, with medical services and prescription drugs becoming more expensive daily. Additionally, the cost of energy, including electricity and natural gas, is increasing impacting household budgets.
How We Got Here and Why?
The United States has experienced an increase in inflation in recent years, fueled by a combination of factors, including:
Supply chain disruptions: The COVID-19 pandemic caused disruptions in supply chains, leading to shortages of goods and raw materials and higher consumer prices.
Government stimulus: The US government has implemented several rounds of stimulus packages in response to the pandemic, flooding the economy with cash and contributing to inflation.
Labor shortages: The pandemic also caused labor shortages in many industries, which has led to increased wages for workers and higher prices for consumers.
Rising energy costs: The cost of energy has increased, with higher prices for gasoline and other commodities, which has increased the cost of goods and services.
Monetary policy:The Federal Reserve has kept interest rates low to stimulate economic growth, contributing to inflation by making it cheaper for consumers and businesses to borrow money.
These factors have all contributed to the current state of inflation in the US. However, inflation is complex and multifaceted; many other factors are also at play.
7 Tips to Help Navigate Inflation
Inflation can be a challenging economic environment for households to navigate. Here are tips from our team of advisors at Trilogy Financial that can help you manage inflationary pressures.
1. Calculate Your Inflation Rate
This measure provides a more accurate reflection of the inflation you are experiencing compared to the general inflation rate reported in the media.
A financial advisor can help calculate your personal inflation rate by analyzing your spending habits and identifying the goods and services that make up your personal consumption basket. This process can involve reviewing bank and credit card statements, examining household bills, and discussing significant lifestyle or spending habits changes to help you track the prices of these items over time and calculate your inflation rate.
2. Create a Cash Management Strategy
A cash management strategy will allow you to preserve your purchasing power and financial stability. A financial advisor can help you create a strategy that aligns with your financial goals and risk tolerance by:
Assessing your current financial situation,
Identifying your short-term and long-term cash needs, and
Recommending appropriate investments that balance liquidity, yield, and risk.
The strategy can involve diversifying cash holdings across different asset classes, using inflation-indexed bonds or money market funds, and considering alternative investments that offer potential inflation protection.
3. Discuss When and How to Use TIPS to Protect Against Inflation
Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bond indexed to inflation. As inflation rises, the principal and interest payments of TIPS adjust accordingly, providing investors with a hedge against inflation. A financial advisor may recommend TIPS if you want to protect your portfolio against inflationary pressures or maintain your purchasing power over the long term. It could involve assessing your risk tolerance and investment objectives and recommending an appropriate allocation to TIPS within a diversified portfolio.
4. Discuss Alternative ‘Inflation-Hedging' Assets
In addition to TIPS, assets such as commodities, real estate and stocks of companies with pricing power can provide inflation protection. A financial advisor can help you choose the right assets for your portfolio by assessing your investment objectives, risk tolerance and time horizon. As a result, they can recommend an appropriate allocation to inflation-hedging assets that balance return and risk, like commodity funds, real estate investment trusts (REITs) or sector ETFs offering exposure to companies with pricing power.
5. Strategize for How to Avoid ‘Tax Bracket Creep' as Income Rises
Tax bracket creep pushes an individual's income into a higher tax bracket, resulting in a higher tax bill. This move can erode the purchasing power of your income and reduce your savings.
A financial advisor can help you strategize on how to avoid tax bracket creep by considering tax-efficient investment vehicles, such as Roth IRAs, tax-loss harvesting and charitable donations.
6. Review Homeowners and Other Insurance Solutions to Avoid Under Coverage
As the value of assets, goods and services increase due to inflation, the cost of replacing them also rises. A financial advisor can help you review your insurance coverage and ensure they have inflation protection from risks.
Advisors can also educate you on the different types of insurance available and their benefits, such as umbrella insurance, which can provide additional liability coverage in case of a significant lawsuit or accident.
7. Reassess Long-Term Inflation Assumptions for Retirement Projections
Inflation can significantly impact retirement savings and planning because it reduces the purchasing power of money over time. Individuals will need to save more to maintain their living standards in retirement.
A financial advisor can help you reassess your long-term inflation assumptions for retirement projections by analyzing your current savings and investment strategies, projecting future inflation rates, and identifying potential gaps in your retirement plans.
From Us to You: Control Your Financial Future
As inflation continues to affect households, you should take control of your financial situation and work with a financial advisor to develop a plan aligning with your goals, risk tolerance and personal situation.
Trilogy Financial is a financial advisory firm dedicated to helping clients navigate the complex world of personal finance. We offer comprehensive services, including financial planning, investment management, and retirement planning.
If you are concerned about the impact of inflation on your finances, contact us today to schedule a consultation with one of our experienced advisors. We are here to help you take control of your financial situation and navigate through the challenges of inflation.
Female financial advisor meeting and discussing expert inflation protection tips with clients.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual 2. Investing involves risk, including possible loss of principal.
How much time have you spent thinking about your future death? If you’re like most people, probably not much. Thinking about your death or that of a loved one can bring up plenty of unpleasant emotions, but having a plan to take care of the details can ease some of the stress in a time of grieving. So if you’ve lost someone close to you or just want to create a plan for the future, follow this checklist to help you deal with the financial side of an unexpected death.
Organize Documents
In the aftermath of a loved one’s passing, his or her will is not the only document you will need. In order to do things like request benefits or change the name on car titles, you will also need copies of the following:
Birth certificate
Death certificate
Marriage certificate
Social Security card
Automobile titles
Property Deeds
Insurance policies
Bank, investments, and retirement account statements
If you want to plan ahead, ask yourself: Do you have an organized filing system, or are all your important documents strewn about in different places? As you organize your family’s documents, make sure the appropriate people have access to the information they will need in the event of an unexpected death.
Notify The Appropriate Contacts
There are a few people you will need to contact who will be able to help you through the process of taking care of the deceased’s finances. As soon as you are able, reach out to their financial advisor, insurance agent, attorney, and accountant. These professionals are trained to know how to handle an unexpected death, and they will be able to direct you to the right sources of information and help you make the best decisions possible.
Take Care Of Immediate Financial Needs
When someone close to you dies, there are many time-sensitive tasks that need to be taken care of. These tasks often have a financial element involved. For example, when making funeral arrangements and covering burial expenses, be sure to review life insurance policies and look for any pre-arrangement details or last wishes the deceased may have left. Some expenses may be covered, which will save you a financial headache. Speak to the deceased’s financial advisor to see if there are any easily accessible funds set aside for bills or debt payments that cannot be deferred.
Review Benefits
Surviving family members may be entitled to certain benefits, such as Social Security benefits and perhaps pension benefits, life insurance, and annuities. Contact the human resources department of the deceased’s employer, who can explain and document the following benefits that may be available to you, including:
Life insurance
Healthcare, or extended healthcare coverage through COBRA
Compensation due, such as stick options or unused vacation pay
401(k) or pension
Depending on your relationship to the deceased, you may need to apply for Social Security survivor benefits, update insurance beneficiaries, and apply for settlement.
Manage Their Estate
Finances can get messy when someone dies. Our financial lives can be complicated, so use this list as a starting point for closing accounts, updating information, and taking care of the countless details. Look into whether the deceased had any of the following accounts and contact the institution:
Checking Account
Savings Account
Brokerage Account
IRA
401(k)
403(b)
Health Savings Account
Flexible Spending Account
College Funds
Don’t forget about debts. Debts don’t disappear when someone passes away. Investigate the following and make sure those who are now responsible for these debts are aware of the creditor’s name, outstanding balance, name on the debt, loan terms, and the amount, timing, and method of payments.
Mortgage
Home Equity Line of Credit
Automobile Loans
Personal Loans
Student Loans
Credit Cards
Make sure you don’t forget about recurring household expenses, such as utilities, and how and when to pay them: .
Property Taxes
Electricity
Sewer
Water
Natural Gas
Garbage
Telephone
Cable TV
Internet Service
Landscaping
House Cleaning
Homeowners Association Dues
Other organization membership dues
Work With A Trusted Advisor
Handling the details after the death of a loved one can be overwhelming, but you don’t have to do it alone. Financial professionals are experienced with these situations and can guide you through the steps that apply to your unique circumstances. They will not only help you take care of pressing problems and concerns, but can also help you feel more secure in a time of financial change. A financial advisor can make sure your affairs are in order, update your financial plan, and implement appropriate strategies to help you stay on track financially.
