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Finance Lessons Learned from the Pandemic

February 23, 2022 by Jacob Sensiba Leave a Comment

The Covid-19 pandemic changed life for two years and there are definitely still elements of what life was in the world today. No doubt there were some terrible things that happened. People lost their lives and their jobs. But there were also positives that came out of it. We’re going to highlight the lesson we can learn from this pandemic, particularly some personal finance lessons we can learn.

Working from home

This new type of work does not apply to everyone and I don’t like leaving people out, but this needs to be talked about. Working from home and articles about it took over during the pandemic and continue to be discussed.

Working from home, at least from some of those articles and studies, appears to be a net positive for employees and employers. Let time commuting, less overhead costs, more productivity thanks to no commute, increased job satisfaction, and improved work-life balance.

Thanks to the work-from-home setup, people who were able to do that moved out of the city or rented an Airbnb for an extended amount of time. In either case, those people were, likely, able to reduce their housing costs by moving to the suburbs or giving themself a little vacation/change of scenery.

Savings rate

A lot of people saved money during the pandemic thanks to stimulus payments. In April of 2020, the personal savings rate for Americans was 33%. In March of 2021, the personal savings rate for Americans was 26.6%.

The savings rate has fallen since then but is still above 12% which is higher than it was before the pandemic (less than 10%).

Stimulus payments

According to the National Bureau of Economic Research (NBER), most Americans either saved or paid down debt with the majority of their stimulus payments. 40% of the stimulus payment was spent, 30% was saved and another 30% was used to pay down debt.

Personal finance lessons

I think there were a lot of personal finance lessons that can be learned from the pandemic. Here’s a list of them below:

People saved more money

The future was very uncertain so people were more conservative with their spending and less conservative with their savings. That mindset shouldn’t change. The future, in principle, is uncertain. We do not know what tomorrow holds, so saving for a rainy day/goals/retirement is very important.

You don’t need to spend money to have fun

At the very beginning of the pandemic, you couldn’t go anywhere. Quarantine and lockdown orders came in right away. Instead of getting together in person, people utilized Facetime, phone calls, and Zoom. I, personally, had group Zooms with family members where we played and had conversations like we would if we were in person.

Diversification is important

Early in the pandemic, the market tanked. We lost over 30% in six weeks. Granted, it came right back up not long after, but that might not always be the case. If you don’t have time to ride out the ebbs and flows of the market, it’s important you get your asset allocation right. Talk with your adviser to make sure your investment matches your time horizon and risk tolerance.

Get rid of debt

You never know when your job and your ability to earn can be taken from you. Some people lost their jobs, some people were furloughed, and some people just weren’t able to go to work. If you don’t have an income, the only other part of the balance sheet you can affect is your expenses. Get rid of your debt. That’ll help you reduce your expenses in case that happens (you can also save more).

Protect your loved ones

Get life insurance. A lot of people passed away during the pandemic. If you contribute income to your household, you need to make sure you financially protect the people that rely on your income.

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Jacob Sensiba

My name is Jacob Sensiba and I am a Financial Advisor. My areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. Please feel free to contact me at: jacob@crgfinancialservices.com

www.crgfinancialservices.com/

How to Increase Your Net Worth

February 2, 2022 by Jacob Sensiba Leave a Comment

Your net worth is a benchmark for your financial success. Notice that I said financial success and not just success. That was intentional because money doesn’t define your success. Money can afford you freedom, but I believe real success doesn’t involve money. That was free of charge, now let’s talk about how to increase your net worth.

What is net worth?

Net worth is assets minus liabilities. How much wealth do you have after you subtract what you owe versus what you have? It’s typically used to gauge your progress in your financial life. If you have debt, then when you pay it down, your net worth goes up. The same happens when you increase your savings.

How to increase your assets

Honestly, the only way to increase your assets is to save money. At least, that’s where it all starts. The more you save, the more you have to work with.

How do you save money? Decrease your expenses and/or make more money. That’s what it comes down to. Figure out what’s important – in terms of your budget and spending. Everything else that doesn’t fit on that list needs to either be removed or reduced.

Once you have money saved, then you can put it to work. Invest it in securities or assets that have a chance to increase in value. What kinds of things have a chance to increase in value? Stocks, bonds, mutual funds, ETFs, precious metals, real estate, certificates of deposit (CDs), and cryptocurrency/NFTs (though I would tread carefully here).

Growing your assets will help you increase your net worth.

How to decrease your liabilities

Pay down your debts. That’s it. Obviously, it’s more challenging than that. Ideally, what you’d want to do is pay down your debts before you focus on the saving aspect of it. If you have debts with high-interest rates, like credit cards, those should be your first priority.

We’ve gone into detail about the repayment methods before so we’ll only touch on them briefly, but what’s important is decreasing your expenses so you can make larger, more regular payments towards your debts.

The next step is developing a repayment strategy. The two we’ve talked about before are the debt avalanche and the debt snowball. The debt avalanche – you pay the debt with the highest interest rate off first before moving to the next one. The debt snowball – you pay the debt with the smallest balance off before moving on to the next one.

Paying down your debts will really help you increase your net worth.

Is there a net worth number you should hit?

At the end of the day, your net worth number is really a reflection of what you’ve saved for retirement. Ideally, you will not have any debts, including your mortgage. So there’s no math that needs to be done. What are your assets? Primary home, any rental properties, and then your retirement savings, with primary home and retirement savings being the two most common for everyone.

So the question becomes, how much should you save for retirement? Thankfully, we’ve created a guide for you to help answer that question (see below).

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

Managing High Inflation in Retirement

December 29, 2021 by Jacob Sensiba Leave a Comment

Inflation is high. We all know that. I’ve been writing about it for months and it appears that it’s here to stay. With all of that said, I saw a question the other day about how to manage the high inflation when you’re in retirement, and I thought it was a good topic to talk about today. So we’re going to discuss high inflation in retirement, how it’s impacting retirees, budgeting strategies, investment strategy changes, and if inflation will be an ongoing concern for retirees.

Inflation right now

It’s high…no surprise to anyone. In January it was 1.4%, in April it was 4.2%, in July it was 5.4%, in October it was 6.8%, and in December it was 5.9%. That’s historically high. The highest it’s been in 40 years. Will that stay, only time will tell and we’ll get into that later.

How is it impacting retirees?

Things are getting expensive, so when you set a budget at the beginning of your retirement you account for the current price of the things you need. You should also account for increased costs of items as time goes on because there can be big or small increases…either way, prices costs will go up.

Groceries and energy are two prime examples of things that have gotten more expensive recently. So when those things went up in price, it probably pinched people’s budgets, and/or pushed forward costs that probably weren’t expected for several years. Odds are, they’re spending more money now on food and energy than they anticipated. Hopefully, people have been able to make adjustments already.

Budgeting Strategies

There really aren’t a lot of tips I can give you. The best thing I can really say is to cut costs where it makes sense to account for things that are now more expensive. The other tip, though this is more of a gamble, is to not make any changes now and make changes in the future when inflation comes down.

Investment Strategies

With your investment, you’ll need to reallocate some assets. I wouldn’t take any money out of stocks. What I would do is take some money out of your bond investments and put it into precious metals. The FED said that they plan on hiking rates three times in 2022. Bond prices will go down when interest rates go up. Increasing your stock allocation or putting some money in precious metals could be a good way to combat inflation.

High inflation here to stay?

No, I do think it will be here until the FED hikes rates, but my reasoning for that has to do with what happened in 2018. If the FED can raise rates without putting a cork in the recovery, then I think there’s a possibility that inflation and the federal funds rate will stay elevated until the bubble pops.

Disclaimer:

Jacob Sensiba

www.crgfinancialservices.com/

What’s The Federal Reserve Going To Do?

June 23, 2021 by Jacob Sensiba Leave a Comment

There’s a lot going on in the world right now. Supply disruptions, stimulus payments, excess savings, labor shortages, and infrastructure are all playing a role in economic policy. In today’s post, I want to try and explain how they all play a factor with regard to how the FED determines policy.

Supply disruptions

Inherently, supply disruptions don’t have much to do with how the federal reserve coordinates monetary policy. The biggest supply disruption we have at the moment involves semiconductors.

The wide applicability of semiconductors makes them very important in product development and deployment. What’s more, the number of semiconductors needed just keeps growing.

The bad news is…there’s a supply shortage. That creates upward pressure on price. Not only for the semiconductors themselves but also for the products that use them.

Stimulus payments and excess savings

When Covid hit, the world shut down. People were out of work, so they didn’t spend money. People didn’t spend money, so businesses started losing revenue. In order to prevent total economic collapse, the government sent stimulus checks to qualifying individuals and boosted unemployment.

A lot of people saved this “extra” money and recently started to spend it. Jobs are starting to come back and the global economy is starting to look healthy. Confidence inspires spending. Increased consumer spending is good for the economy.

Labor shortages

Labor has become a big topic of conversation. Not only do we have more jobs available than we have people to take those jobs, but workers are quitting in large numbers. Both of those factors can have a large impact on wages.

Employers are having trouble filling roles. How can they attract applicants? Better wages and benefits? For those that can afford bigger payroll, that’s the avenue they’re using. That puts upward pressure on wages.

I also mentioned workers are quitting in droves. Employees are demanding to be fairly compensated and enough of them are banding together now. Improved benefits and increased wages are becoming more likely.

Wage inflation helps feed the price inflation narrative. The prices for products and services go up because of supply and demand factors. Wage inflation increases due to supply and demand dynamics.

These two inflationary pressures feed on each other. Wages go up so workers can afford more. Prices go up because workers can buy more, and so on.

Infrastructure

News broke about a new infrastructure bill (Source). On top of, already, record-breaking government spending, that’ll juice our GDP numbers for 2021.

I don’t have much else to say about this other than the spending involved will create inflationary pressures AND I’m proud there was bipartisan support for this bill. Not something we see very often anymore, so I’m happy it turned out this way.

The Federal Reserve

With all of that said, what’s the federal reserve going to do? If inflationary pressures are as hot as they seem, I fear the FED will have no option, but to end their accommodating stance on monetary policy.

They’ve already indicated that a rise in interest rates in Q3 or Q4 of 2023 is likely. They claim that they will let inflation run past their 2% target but by how much? At one point do they say enough is enough?

That’s a tough question to answer. I think in this situation, they’re talking bigger than what they’ll actually deliver. It’s all well and good if they say they’re going to let inflation run, but we’ll see what actually happens when that gets here.

Disclaimer

Jacob Sensiba

www.crgfinancialservices.com/

Down Payment or Investment Opportunities?

June 17, 2020 by Jacob Sensiba Leave a Comment

The current dilemma I am having is whether to stash my savings for a down payment on a house or contribute to my Roth so I have cash available for buying opportunities.

I’m pinching pennies, and I’m saving money wherever I can so that cash is accessible when I need it. I just don’t know what to do with it.

Do I put it towards a down payment or set it aside for investment opportunities. Like most things in life, the answer will lie somewhere in the middle.

Down payment

I’ve mentioned in prior reflections that I’m renting right now.

I’m renting because I got divorced and exhausted all of my savings on the down payment for my house. That house is currently being rented by another family, and my ex-wife and I still own it.

That’ll help build equity into the house so we receive more if/when we decide to sell, which is good.

I’m happy with my current living arrangements. I like the place. I like the neighborhood. My commute to work is 2 minutes, and I’m close to all of my family and friends. All good things.

The only bad part is I have no outdoor space to call my own. I have no yard.

I’m trying to frame it positively by saying that I’m not spending my time on yard work, and instead, have more time to spend with my son/work on myself when he’s not here. These are both very good things.

However, I want to give my son a space to play. A place to put a jungle gym and a sandbox. A place where he can just run around and have fun.

I want to give him that because he deserves it. I want to use my savings for a down payment on a house so we can have a place to call our own.

Investment opportunities

Here’s the second part of my dilemma. I see a lot of chances to put my money to work in the market.

I’m able to play the long game because of my investment philosophy and my training. The best investors I have long-term time horizons.

What I mean to say is I can see past the present and I have an idea of what my investments can do over the long term, and the [possible] reward for investing now can’t be ignored.

That’s why I’m having a difficult time deciding what to do.

What will I do?

As a parent, you want to give your kids everything. I want to have a place we can call our own.

At the same time, I know how valuable it is to start saving and investing early so I can take advantage of compounding returns.

So here’s what I’m thinking. I’m going to develop a “savings plan”. I’ll take the dollar amount for an ideal down payment and how far in the future (in terms of years) when I’ll want to use it.

I’m thinking of $25,000 for a down payment and four years until I’ll use it. I’ll, then, divide $25k by 48 to get my monthly savings goal. Anything over that number I’ll put in my Roth.

That’ll take care of saving for a house and for retirement.

My Last Reflection:

My Experience with Life Insurance

Working from home

Savings rate

Stimulus payments

Personal finance lessons

People saved more money

You don’t need to spend money to have fun

Diversification is important

Get rid of debt

Protect your loved ones

Related reading:

Disclaimer:

What is net worth?

How to increase your assets

How to decrease your liabilities

Is there a net worth number you should hit?

Related reading:

Disclaimer:

Inflation right now

How is it impacting retirees?

Budgeting Strategies

Investment Strategies

High inflation here to stay?

Related reading:

Disclaimer:

Supply disruptions

Stimulus payments and excess savings

Labor shortages

Infrastructure

The Federal Reserve

Related reading:

Disclaimer

Down payment

Investment opportunities

What will I do?

My Last Reflection:

Related reading: