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The Economy and the Election

October 29, 2020

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Today, conversations, screens, and ads on how the upcoming election will affect our economy and the American way of life are unavoidable. Naturally, we start to ponder how the outcome might impact our own financial independence. Since market forecasters and economic commentators ever really get it right only part of the time, formulating investment strategy based on “expert” prognostications and financial journalism routinely sets individual investors up for failure.

According to historical analysis, in 19 of the past 23 election years from 1928-2016, stock market returns were positive, no matter which party held office. In fact, during an election year, the S&P 500 has experienced an average return of 11.3%—data that demonstrably counters the stock market doom and gloom headline hysteria generated in the media.

While it is crucial not to be emotionally reactive, it is equally important to plan for economic changes that are realistically possible. Following an election, it is wise to assess how federal policies could impact your plan.

A few takeaways…

Separate your personal politics from your investment decision-making.
Remain calm and focused on your long-term plan: thoughtful planning plus sound decision-making matters.

During his First Inaugural Address, our 32^nd President reminded the nation that “the only thing we have to fear is fear itself.” If not kept in check, fear becomes a catalyst for rash decision-making which can impede your path to financial freedom. As always, I am here to talk things through with you, to listen, and to assuage your fear; that’s my job.

Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you're driving to work, you see smoke coming from under your hood. Bad things happen to the best of us, and sometimes it seems like they come in waves. That's when an emergency cash fund can come in handy. One survey found that nearly 25% of Americans have no emergency savings. Another survey found that 40% of Americans said they wouldn't be able to comfortably handle an unexpected $1,000 expense.^1,2

How Much Money?

How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies. And if a job loss affects your income, you may need emergency funds for months.

Coming Up with Cash

If saving several months of income seems unreasonable, don't despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into the fund. Once your savings begin to build, you may be tempted to use the money in the account for something other than an emergency. Try to avoid that. Instead, budget and prepare separately for bigger expenses you know are coming.

Where Do I Put It?

Many people open traditional savings accounts to hold emergency funds. They typically offer modest rates of return. The Federal Deposit Insurance Corporation (FDIC) insures bank accounts for up to $250,000 per depositor, per institution, in principal and interest.³Others turn to money market accounts or money market funds in emergencies. While money market accounts are savings accounts, money market funds are considered low-risk securities. Money market funds are not backed by any government institution, which means they can lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.

Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.⁴

Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

The only thing you can know about unexpected expenses is that they're coming. Having an emergency fund may help to alleviate stress and worry that can come with them. If you lack emergency savings now, consider taking steps to create a cushion for the future.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

MarketWatch.com, 2020
Bankrate.com, 2021
FDIC.gov, 2022
Investopedia.com, 2021

Investment Insights

Frugal Money Saver: The Pathway to Early Retirement Through Financial Planning

By Trilogy Financial

February 20, 2024

Have you ever envisioned a life of Financial Freedom and Leisure?

Have you ever envisioned a life where the chains of daily grind are broken well before the conventional retirement age, paving the way for a life of financial freedom and leisure? Embracing financial discipline and frugality can pave the way to a comfortable early retirement, answering the pressing question: Can meticulous financial planning and a frugal lifestyle significantly hasten your journey to early retirement?

What Makes Financial Planning Crucial?

Financial planning goes beyond merely saving a portion of your income; it's about understanding and rectifying financial bad habits that may impede your journey towards financial stability. Everyday financial misbehaviors such as impulsive spending, credit card debt, and the lack of a structured financial plan for emergencies often go unnoticed but have a long-term detrimental impact on financial health. Addressing these personal finance habits is the first step in financial planning.

Why is Debt Management Essential? A key aspect of financial planning involves managing or eliminating debt, which can otherwise consume a significant portion of your income in the form of interest payments.
- Did you know in the US for 50-59-year-olds the average debt is $23,719¹.

How Can Budgeting Secure Your Financial Future? Being unsure of where your money is going is a red flag. Budgeting is crucial to track and control spending, ensuring your expenditures align with your values.
- Did you know the average individual aged between 65 to 74 spends about $55,000 on living expenses annually².
How do Savings and Investments Impact Your Retirement Goals? Setting aside money for an emergency fund and future investments is essential. Automating this process by having a portion of your income transferred to savings or investment accounts can help in cultivating this good financial habit.
- Americans believe they need an average of $1.7 million to retire comfortably, although many won't accumulate enough net worth to retire³.
- As of 2019, only 11% of Baby Boomers managed to save up to $500,000 for their retirement².

What Does Adopting a Frugal Lifestyle Entail?

Frugality is about making informed and restrained financial decisions to save money. A frugal lifestyle encourages avoiding unnecessary expenses and finding value in what you spend.

Examples of frugal practices include avoiding spending triggers like malls or online shopping platforms, utilizing cash over credit to prevent overspending, and finding cost-effective alternatives for everyday expenses.

Did you know 20% of Americans don’t save any amount of their yearly income, and 42% have less than $10,000 saved for retirement⁴.

What are the Key Components of Financial Planning for Early Retirement?

Emergency Fund: Ensuring you have an emergency fund can help buffer against unforeseen circumstances like a job loss or medical crisis, which might otherwise derail your financial plans.
Investment Strategy: Diversifying your investments and aligning them with your retirement goals is imperative for financial growth.
- 84% of Americans have a higher income than their parents did at the same age, indicating potential for savings and investment if managed wisely⁴.
Tax Planning: Efficient tax planning can help in preserving your wealth and ensuring more of your money is working for you rather than going towards taxes.
Healthcare Planning: As healthcare costs can be exorbitant, planning for these expenses is crucial to avoid financial strain in later years.
- Healthcare can be a significant part of living expenses, as seen in the $55,000 annual spending for individuals aged 65-74⁵.

Which Tools and Resources Can Aid Your Financial Planning Journey?

There are myriad tools and resources available to aid in your financial planning journey. Budgeting apps, financial advisors, and online courses are excellent resources. Trilogy Financial, for instance, offers a Decision Coach program designed to provide additional accountability and coaching to individuals seeking financial guidance.

37% of workers aged 25 and older, and 19% of retirees, report not knowing where to go for financial or retirement planning advice⁵.

Easily Meet with a Certified Financial Planner.

How Have Others Achieved Financial Independence and Early Retirement?

The quest for early retirement often begins with a thorough re-evaluation of one's financial plan, identifying areas of improvement, and capitalizing on unforeseen savings opportunities. The year 2020 saw many Americans saving more, with an average of 10% more money saved compared to 2019, mainly due to lifestyle changes induced by the pandemic. Some redirected these savings towards home improvements, while others saw it as a stepping stone towards drafting a solid financial plan aimed at debt reduction, college planning, or accelerating the journey to financial independence.

Various individuals and communities dedicated to frugal living and meticulous financial planning have emerged over the years, showcasing diverse pathways to early retirement. Here are a few noteworthy examples:

Juan's Early Retirement Ambition: Juan, an aspiring early retiree, aimed to bid farewell to his federal job by 2031 at the age of 43. His strategy revolved around living off savings, investments, and dividends post-retirement to enjoy more time with family and delve into philanthropic ventures. Though new to the Financial Independence, Retire Early (FIRE) movement, Juan's no debt and $85,000 asset accumulation puts him in a favorable position towards achieving his goal¹.
- The FIRE Movement: The Financial Independence, Retire Early (FIRE) community exemplifies the synergy between frugal living and early retirement. Members of this movement, like Juan, embody a lifestyle of extreme savings and frugality, aiming to retire much earlier than the conventional age².
Young Adults Eyeing Early Retirement: The allure of early retirement isn't confined to older age groups. One in four individuals between 18 to 34 years old has set early retirement as their significant financial milestone, driven by the principles of frugal living and meticulous financial planning³.
A 5-Year Transition Plan: A couple outlines their 5-year plan towards financial independence, with one partner continuing full-time work for an additional 3-4 years, demonstrating a balanced approach to achieving early retirement while maintaining a comfortable lifestyle⁴.
Frugal Living as a Fast Track to Early Retirement: The narrative of saving 75% of income, a hallmark of frugal living, expedites the journey towards early retirement, allowing individuals to accumulate substantial savings, invest wisely, and achieve financial independence sooner⁵.

These cases highlight the transformative impact of frugal living and prudent financial planning to achieve early retirement dreams. They speak to the importance of continuous financial plan evaluation, adapting to changing circumstances, and leveraging savings opportunities to expedite the journey to financial independence and early retirement.

Conclusion:

The road to early retirement is laden with challenges, primarily stemming from our own financial bad habits. However, if we create a financial plan, adopt a frugal lifestyle, and leverage available resources, overcoming these challenges and retiring early is an achievable goal.

The Economy and the Election

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