The Finatical
Week of June 21st, 2021 - Borrowing Tips, Labor Shortage, Rising Consumer Prices
FinaticTips - 3 Personal Finance Tips
1 - Create a Debt Repayment Plan
A debt repayment plan is an ordered list of all your debts ranked according to their interest. It is necessary to create a repayment plan so that you can adjust your budget according to each expense and you actually start making payments for your debt every month. It might seem like a very uninviting task to list all of your liabilities on a single page but it is better to be prepared than to live in ignorance. Here’s how you create a debt repayment plan:
Make a list of all your debts (even if they are REALLY bad) - Do not hesitate to list any debt no matter how big or small.
Rank your debts according to their interest (highest to lowest)
Try to minimize the interest on debts - Minimize the interest on your debts by refinancing your home loans, locking a lower interest rate on your student loan, etc.
Calculate you how much you can afford to pay for each debt every month
Prioritize high-interest debts - See if you need to use your emergency fund to pay off high-interest debts
Once you’re done, follow your plan!
2 - Save on Student Loans
A student loan is debt that almost everyone has on their plate, but there are a lot of ways to cut down on your debt:
Fill out the FAFSA - The Free Application for Federal Student Aid is a form that can determine your eligibility for student financial aid and it never hurts to fill it out.
Choose Federal Student Loans over Private Loans - Federal loans offer flexible terms of payment including the standard 10-year plan, income-driven plans, extended repayment, and other plans. This flexibility can be really helpful if your income is limited and you need to lower your monthly payments. Typically, federal student loans also have better interest rates.
Refinance your student loans at lower rates - Once you have built your credit and have a higher income, you might qualify for student loan financing. This can help you restructure your debt, adjust terms and possibly score a lower interest rate.
Sign up for automatic payments - Many financial institutions offer a discount on interest when you sign up for automatic payments. It can also help you avoid missing a payment.
The tips listed above can help you in achieving a financially burden-free education. You have nothing to worry about!
3 - Take On Smart Debt Only
Unnecessary debt should be avoided at all costs. Food chains and supply stores often offer discounts for signing up for company-supplied credit cards. We end up saving 15% off that purchase and the idea of paying later is quite compelling but we end up using more and more credit. This adds to our debt and what started as a one-time benefit turns into regular monthly payments. Therefore, make sure to take on smart debt only and avoid any unnecessary credit policies. Smart debt includes debt that benefits you in the long run and can be easily paid off. Weigh the pros and cons of any debt before taking it on. For example, avoiding taking on large amounts of debt to buy a depreciating asset like a car and instead invest in an appreciating asset like an education. It is also very important that you actually understand the amount you have to pay for any loan and you do not end up looking like Michael Scott on The Office while dealing with a real estate agent :) This tip will allow you to be less burdened by debts so you can spend and save freely!
FinaticTrends - 2 Financial Trends
1 - Job Market...Slacking
There were 9.3 million job openings in the U.S. in April, meaning there was a job for everyone unemployed. In May, we saw businesses struggle to fill job vacancies, thereby increasing wages and providing bargaining powers to workers demanding better perks. Last week, the May jobs report was released and the U.S. economy added 559,000 people to payrolls. This jobs figure was significantly lower than economists’ estimate of 671,000, and at the current pace it would take more than a year to regain all the jobs lost since February 2020. This shows us a large labor shortage and despite rising vaccinations, the rate at which adults are participating in the workforce has been flat since last summer. There are numerous reasons for this, ranging from a skills mismatch and a lack of skilled workers to fill the requirements of most jobs. But by far, unemployment benefits continue to compel people to not work, so it will be interesting to see how the job market will be affected when federal unemployment benefits start to expire.
2 - Consumer Prices Jumping
Just this past month, consumer prices increased at their fastest pace in nearly 13 years. The consumer price index (CPI), a measure of the change in prices paid for goods and services, rose 5% from last year, surpassing most economists' predictions. In fact, this represents the largest CPI gain since the 5.3% increase that occurred right before the financial crisis that sent the US into a recession in 2008. However, officials believe the current rise looks higher due to the low economic activity that occurred a year prior and that prices will subside as the year goes on. This has raised concerns over high inflation but we have yet to see the Fed and even markets react. Regardless, this CPI jump is one to keep inflation at the center of political and economic debates.
Financial Guidance
"In investing, what is comfortable is rarely profitable." - Robert Arnott
At times, you will have to step out of your comfort zone to realize significant gains. However, it is important to know your boundaries and practice stepping out of them in small doses. Can you handle staying in when everyone else is jumping ship or getting out during the biggest rally of the century? The best investment strategy can turn into the worst if you don't have the stomach to see it through.
Money Fact
A penny costs 2.4 cents to manufacture.
Yup, making a penny is more expensive than spending it.
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