Saving | Live a Life By Design

Psychology Beats Economics

Posted on June 14, 2023June 14, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

All of us remember the childhood story, and related lessons, of the Tortoise and the Hare. The moral of the story is one that is applicable to people of any age. Start moving and keep a steady pace toward your goal is the virtue of the fable.

It sounds a little too simple, but we apply this approach to all our clients’ needs and goals. One of the most challenging actions to initiate is the first step. You expend the most energy when you create an action from nothing. It is only when you take your body out of movement stasis that it burns more calories, requires more brain input and causes you to become uncomfortable. A favorite saying of mine is, “you can’t grow unless you become uncomfortable.”

Applying this approach to your lifetime savings goals, consider starting with a slower pace as a new marathon runner would do. Save a smaller amount to start the habit of saving each period you choose (i.e., weekly, biweekly, monthly, etc.). As you witness your progress by watching your savings or investment account grow, you will experience a sense of accomplishment that will fuel your next step. Like dominoes lined up close to one another, after you get the first domino to fall the energy and contact on the next domino causes a chain reaction that is entertaining to watch.

To note your progress on this financial marathon, create checkpoints along the journey that trigger you to note your status on the way to your goal. You may want to check your account balance every six months or annually on the anniversary of your start date. This type of approach feeds your energy level to continue the process until you reach retirement or whatever goal you desired. I often tell people that the first million dollars in savings is the hardest to reach. After reaching that landmark goal, the next million is much easier.

Set yourself up for success by lessening the friction within the process of saving. Utilize deferrals from your paycheck to fund your retirement each pay period. If you do not see the funds or must write a check, prepare an envelope and mail the money to an account, you are more probable to stay on track. Also, do the same with your post-tax investment savings. Set up a systematic automated clearing house (ACH) arrangement to move funds from your checking or savings accounts to your investment account at prescribed intervals.

To help illustrate the power of compounding and accomplishing long-term savings goals, I will share the story of a client of ours. She had a limited income and worked in a career that provided a pension after she worked for the agency for 10 years or more. Her lifestyle was maintained within her means, and she created a savings schedule to contribute to her pre-tax retirement account with the agency from her first day of eligibility. At age 66, she retired after 40 years of service and began to receive her pension.

When asked about the difficulties she encountered during her accumulation years, she remarked, “Certainly difficult days did come. However, I simply recalled the reason for my savings, and I did not want more difficult days in my retirement years.” To paraphrase, she never experienced an “emergency” that caused her to halt or discontinue her saving for the future. She exhibited the discipline needed during her career to enjoy a fruitful life in retirement.

Oh, I forgot to mention that our client became a widow at age 54 and raised a granddaughter from age 3 and funded her college education after the child graduated from high school!

We all think life is tougher on us than anyone else we know. To me, you and I have much to be thankful for and are blessed significantly compared to many people in other countries on the globe. Stay positive and stay focused on the goals you set in life. You will be rewarded for your diligence.

To help you establish a plan for saving for your future, consider a complimentary consultation with a Certified Financial Planner™ professional. A system can be designed that allows you to earnestly save for the future while living your life by design today. Look around and enjoy each day. It is truly a paradise if you look with the right frame of mind!

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Are My Bank Deposits Safe?

Posted on March 31, 2023March 31, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

In the past couple of weeks, the news has carried a headline that shocks many of us – bank closings! Granted the subject banks of the stories have been much larger banks than those in our local communities but the concern for safety of deposits has continued to grow at a grassroots level.

To protect depositors’ accounts, most banks participate in the Federal Deposit Insurance Corporation (FDIC) for coverage like you purchasing insurance on your home or automobile. Participating banks pay a premium on a prescribed basis to retain this coverage for its customers. Silicon Valley Bank was no exception. However, in the present instance, the bank’s management bears more of the blame for failure than systemic banking processes. The United States’ banking system is secure and has functioned as it is designed since the 2008 housing loan crises.

One of the more critical questions is how will the FDIC handle the claims from the affected depositors? This is where the confusion for most citizens begins. Generally, the maximum amount of coverage for an FDIC-insured account is $250,000. There are many different methods of protecting your accounts should you wish to maintain a greater amount than $250,000 in your local bank. For example, if your spouse and you maintain a joint account and add your three children as beneficiaries to the account, the FDIC coverage increases to $750,000 for the beneficiaries.

Before depositing your funds in a prospective bank, you should inquire as to the bank’s participation in FDIC coverage. You may do so by performing a quick search of the bank name at https://banks.data.fdic.gov/bankfind-suite/bankfind or call FDIC at 1-877-275-3342. Banks are required to inform you of such coverage availability when opening your new account. Most often you will see a sign on the bank’s logo or front entrance displaying “Member FDIC” reflecting the bank’s participation in the program.

Should you deposit your funds in a brokerage account, you will automatically receive coverage by a similar program called Securities Investor Protection Corporation (SIPC). However, the two programs differ in coverage amounts and types of coverage. For example, the FDIC limit of coverage is $250,000 per account. SIPC coverage limit is $500,000 per account. Many custodians, another word for “bank”, that hold securities and cash for investment purposes for customers will provide additional coverage through reinsurance. For example, the custodian we utilize for our clients’ assets is Pershing, LLC, a wholly owned subsidiary of the Bank of New York. Pershing, LLC

The key to gaining and maintaining confidence in your bank is to speak with the professionals about your accounts and learn what coverage limits apply to your accounts if more than one account is funded. Personally, I bank with local banks because of the relationship of the professionals, knowledge, and faith of management as well as accessibility to funds. In this modern era, internet banking is becoming the norm and will soon supersede the desire for anyone to travel outside their home to perform banking tasks. Until then, I prefer to shake their hands, speak with the people, and understand clearly who holds my money.

If you are concerned about the news you have heard pertaining to banking challenges in the United States, seek out a Certified Financial Planner™ professional to help you gain understanding about the process. You can sleep better at night understanding the coverage limits for your various accounts and the operations of your local bank. Another of my favorite quotes by William Feather is, “Business and life are like a bank account. You can’t take out more than you put in.”

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Controlling Your Debt

Posted on January 5, 2023January 5, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

A new year always suggests the opportunities to create the world we truly wish to live in and the strategies we must implement to achieve success. Too many of us write down meaningless resolutions on January 1 that have no measurable qualities to denote actual commitment from the writer. This year will be different for you. As Jim Rohn often said, “We all face the same environmental disturbances and life challenges. We can either let the wind blow us where it goes, or we can reset our sail to go in the direction we desire.”

After Christmas, the reality of the expenditures we made comes to our attention. Credit cards that were used to make purchases are now due. Our economy is subjected to the highest inflation we have experienced in 40 years. You will note the impact of this inflation in your gasoline, food, clothing, medical and other items you purchase for everyday living. To counter the increasing inflation impact, the Federal Reserve Board of Governors continues to raise the rate it loans monies to participating banks. This process creates an impact on the economy to discourage the use of credit which will slow the demand of cash in the country.

One of the most noticeable areas of your life in which the Fed’s interest rate raises appear is your credit card bill. When opening your card statement, you will notice the increased interest rate for any balances not paid in full by the due date of the statement. Compare the interest rate from a year earlier to the one you received this month. Most likely the rate will have increased significantly.

The key habit to build into your lifestyle is to pay the monthly balance owed on your card in full each month. Two benefits will result from this habit. First, you will notice your credit score may rise due to the excellent payment record and management of your credit line. Second, you will maintain better control of your monthly budget since you will need the cash to pay off your card balance each month.

One group of professionals that track credit card usage is the American Bankers Association. According to the data collected by the association, 40% of all Americans utilized a credit card and maintained a balance on the account at some date within the second quarter of 2022. Experian, one of the major credit monitoring agencies in the United States, reported that the average balance, reported by credit card issuers, owed by Americans in the third quarter of 2022 was approximately $6,004. In most instances, the reasons for using a credit card are to bridge cash flow needs during the month. However, it is highly recommended that credit cards are not used for purposes of increasing one’s lifestyle.

To control your life, you must take command of the variables that impact you. Your credit should be reviewed annually and loans with the highest interest rate should be liquidated first. Continue this process until all debt is paid in full.

A funny, but true, story that happened to me last summer related to the purchase of an automobile for our daughter. Based on our excellent credit score, our family has not paid interest on a vehicle in more than 20 years. Knowing that our credit score was higher this year than the last vehicle we purchased, I confidently walked into the dealership in her city and introduced myself. Our daughter had researched the type of vehicle she wanted, and the dealership possessed a similar one in its inventory.

We informed the salesman of the amenities she desired on the vehicle and was informed one that she wanted was being shipped to the dealership within a couple of weeks. Remember, this is still a supply chain issue in the U.S., and I informed my daughter to give them a month before expecting delivery. We negotiated the price; I shook hands with the salesman and ask him to write the purchase contract. What happened next completely caught me by surprise!

I had researched the financing options with the manufacturer and noted that there were no zero-interest financing available due to the economy and the demand for vehicles. To counter this economic impact, we were going to write a check for the automobile. As I began to write the check, the salesman noted that I was writing it for the total agreed sales price. He said, “you can’t write a check for the sales price, or we will have to raise the price $1,000.”

Imagine the shock on my face that we would be charged an additional amount for paying the car in full instead of financing the vehicle! I understood what the gentleman was explaining and thought that the dealership would be grateful to work with someone who has such stellar credit and pays up front for their vehicles. Alas, these are different times.

The moral of this story is “cash isn’t always king” and “supply and demand” play a heavy role in the operations of businesses.

Review your current debt and find a means of paying off the largest interest rate loans. If your credit card is carrying a balance, I would recommend you start by paying the largest amounts available on the balance. To assist you with your family’s cash flow planning and other future needs, consult your local Certified Financial Planner™ professional. Hope you enjoy a successful and prosperous New Year!

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Lifetime Decisions on Social Security Benefits

Posted on August 1, 2022August 1, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Perhaps one of the “Top 10” retirement questions we receive is when to elect social security benefits. The question is one that is complicated to answer due to the fact that many unknown variables exist within this question. Just a few considerations are: 1) How long will I live? 2) How can I maximize my benefits? 3) What is the best strategy to gain the most household benefits?

Let’s tackle the first question since it is preeminent to the prediction of mortality. The answer to the question of “How long will I live?” requires greater analysis than a simple number presented as the target date. What age were your parents and grandparents at their deaths? Do you have any comorbidities or systemic health issues? What are your current cash flow needs? Are you married? Widowed? Do you have a dependent child that has been diagnosed special needs? All of these factors, and many more, give rise to a greater amount of analysis to properly estimate your date of filing for benefits.

According to the U.S. Centers for Disease Control, in a study published in 2019, men enjoy a life expectancy, at birth, of 75.1 years and women 80.5 years. Of course, these are averages and many of us will live to 100 years of age and beyond. Curiously, the projected ages for men and women declined in the past year by approximately 0.9 to 1.2 years. Was this due to the effects of the pandemic or is this a normal fluctuation of the population cycle?

The most important election many of us will make that has a lifetime impact is the election to receive social security benefits. Much confusion exists around the timing of this election. We highly recommend that each client examine their needs, lifestyle and circumstances when determining the filing date for benefits. For example, if your lifetime savings is not projected to meet your cash flow needs due to the lower returns from the current market cycle, you may wish to analyze the lifetime loss of SSA benefits by electing earlier than your Full Retirement Age (FRA). It is not ideal to make lifetime decisions based on short-term needs. For an individual who is age 62 and would reach FRA at age 67, if benefits are elected at any time from age 62 to 66 years and 364 days (provided it is not leap year), his or her benefits will be reduced permanently by 30%. Depending on your lifetime earnings report, this may be a significant loss of benefit.

Lastly, the best strategy for your household is to determine the ages of each spouse and then review the earnings reports for each by obtaining them on www.ssa .gov . If the higher earned benefit spouse were to delay benefits until reaching age 70, instead of claiming at age 67, a 24% increase in monthly benefits would be availed to the surviving spouse upon the death of the higher earner. The bonus earned by the higher-earning spouse is material in the fact that many spouses may live to be 90 years of age or more which allows significant time for the collection of the bonus payments. Upon the death of the higher benefit spouse, the survivor would “step in the shoes” of the deceased and receive their benefit (while forgoing the survivor’s original earned benefit).

It is critical that you make the best decision for your family. A proper analysis of the hundreds of options of benefit elections is necessary to give you confidence in this lifetime decision. If you wish to plan appropriately for your SSA benefits, contact a CERTIFIED FINANCIAL PLANNER^TM professional to assist you in this important lifetime decision.

Today is another 24-hour period for you to find gratitude and happiness. Spread your smiles to those around you and you will reap what you sow. I have a saying that may be appropriate – “If smiles were contagious, would you start a pandemic?” See you on the walking trail!

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Opportunity or Tragedy?

Posted on June 16, 2022June 16, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

The world has become a tenuous planet over the past couple of years. Many people have been impacted, some positively and many negatively. How do you think a person can become positively affected by such trauma and chaos in the world? First, the maintenance of attitude.

Negative people only seek ratification of their advice by recruiting others to the depths they find themselves. The positive people will be a much smaller, yet growing, group of people. No matter the opportunity, someone will always find the negative or “how can I lose” option in the venture. This mindset has not created happy people but rather a group of cynical, and often, maligned population that is skeptical of all positive attributes of life.

A person’s attitude is influenced in many ways. It is better to feed your mind with positive stories of successful people than to focus on excessive newsfeeds of the tragedies of the world. I recommend a good book be the focus of your time rather than negative news on a daily basis.

Another attitude influence is the friend circle you maintain. Personally, I spend ninety-nine percent of time around people that are successful, optimistic and charitable. There is always a success story shared among the group that inspires the rest of us to keep growing and making the world a better place for mankind. The most important asset we hold is our attitude. Assets and net worth are merely tools to accomplishing and maintaining a positive outlook in life by contributing the improvement of less fortunate people. When I see the reaction of families that are recipients of positive support, it motivates me to work harder in creating greater change in our community.

The stock market has recently reached bear market territory. That simply means the S&P 500 Index has fallen by 20% since January 1, 2022. Many of us look at our investment statements on the day after such market changes are posted and frown. Some of us look at this lower price in stocks as an opportunity to buy undervalued stocks that will pay dividends for decades to support our livelihood. Remember, the United States stock exchanges are auction markets. For every one that wishes to sell a stock, someone else must be willing to buy it.

For example, if I were to sell XYZ stock and posted my intentions on the exchange at “market”, a buyer could purchase the stock at whatever its price at the moment of purchase was posted in the marketplace. However, if I were a potential purchaser, I may wish to calculate a target price for which I wish to purchase XYZ and order a stock buy at the price. This means if I want to purchase for $25 and the stock is currently at $26 in the market, my buy order will go unfilled until the stock hits the order price called a buy limit order.

Why I am telling you all of this about attitude and your finances? The real reason is that you have worked for more than 30 years accumulating sufficient assets for your lifetime needs. Don’t allow your fears to cause you to make an immediate decision on a lifetime investment because of short-term market activities. We, as a country, have been here before in the markets and we will improve, and most likely, set new market highs in the future. The bigger question is when.

The manner you have invested your lifetime savings is critical to your long-term success. If you have concerns about your portfolio’s allocation and capabilities to withstand significant market headwinds, consider contacting a CERTIFIED FINANCIAL PLANNER^TM professional. The goal is lifetime income for a better night’s rest. Stay positive!

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How To Remain Prudent During Market Cycles

Posted on May 13, 2022May 13, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

What goes up must come down! Whoever authored this statement of life events and business activities should receive the award for the Most Obvious Statement. However inane the statement, it does contain a little truth when applied to our current economic cycle in the United States.

Factors such as inflation, supply chain disruption, interest rate increases, U.S. Government fiscal policies and continued underemployment in our country have caused significant volatility in the markets. It has been a literal rollercoaster for the various market indices used to measure performance of the exchanges in the U.S.

At the start of 2022, the S&P 500 Index was at 4674.77 and closed on May 6, 2022, at 4175.48. This decline of 16.26% has caused investors to worry about the future of their retirement assets. To mitigate the emotional impact of such a decline, consider past market declines and learn from the period of time after the correction. For example, by remaining calm and investing in a well-diversified portfolio, you will recover your unrealized losses in the future. If you are planning to make a large purchase during a market downturn, it may be fiscally more responsible to consider bank loans which carry a much lower rate of interest. Once the markets recover and the value of your portfolio is an unrealized gain, sell a portion of the investments to liquidate your debt.

Another measure of thriving during market cycles is to utilize noncorrelated investments that respond better to inflationary pressure. For example, real estate is a sector of the economy that maintains cash flow and value during market declines. Think about this approach to your income needs during a period of market contraction. Real estate investors continue to collect rents on a monthly, or some other predictable period, basis no matter the state of the economy.

Of course, no investment is immune to such historic market events as the Wall Street Crash of 1929 or Black Monday in 1987. The key to facing any market disruption is to not allow emotions to control your decision making. One of my favorite quotes of Warren Buffett, “Be fearful when others are greedy and greedy when others are fearful” comes to mind during times we are currently experiencing.

Lastly, remember that you most likely took several decades to amass your retirement assets. The intention of these assets is for them to last you several decades in the future. Unless the need for capital was immediate at retirement, your portfolio will grow and contract as market conditions change. By maintaining a long-term perspective, you will be better suited to investing in positions that are below their book value and allow for a growth opportunity in the future. There are positions that are available for you to make reasonable long-term returns while the overall economy is in contraction.

Keeping perspective and maintaining a well-diversified portfolio will help you weather the storms of the economy much better than attempting market timing. Predicting markets is not an approach that serves you well. If you wish to evaluate your portfolio, contact a CERTIFIED FINANCIAL PLANNER^TM professional. Worry never solved a challenge.

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Staying Focused is the Key

Posted on April 14, 2022April 14, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Ask any all-star athlete the secret to their success and they will tell you – focus. This past weekend at The Masters in Augusta, Georgia, Tiger Woods initiated his triumphant return to professional golf. During his post-round interview after he finished the tournament, Woods used the word “focus” several times to describe to the interviewer what his secret was in returning to competitive golf after such a devastating automobile accident.

Life is similar to a sport, perhaps a marathon race. It is difficult for many of us to see the long-term impact of initiating and maintaining a savings plan from age 20 to age 67. As my dad often used the “stick and carrot” analogy, the younger investors can’t taste the carrot due to the overwhelming length of the stick. For those that can maintain the zeal for living a life prepared for unexpected instances that require substantial resources, success is often the outcome.

Younger people look at me with disbelief when I explain the power of compounding to them. To paint the picture in a manner that “shortens the stick and sweetens the carrot”, I ask them to look at their investment account every six months. One of the first statements they utter is “Wow! Look how much I saved and I didn’t miss the money.” Albert Einstein, the great physicist, was credited with a quote about compound interest: “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”

To create a system of focus pertaining to your finances, it is critical that you automate as much of the process as possible. For example, if you are participant in an employer-provided retirement plan, your investment funds will be automatically deferred from your paycheck and invested in the manner you direct your employer. This is a simple method of automating your savings and also receiving consistency in the process.

If you work in a company that does not provide an employer plan, you can accomplish the same automation with an ACH (automated clearing house) election. This process works very similarly to that of your employer election. By filing a form with your wealth advisor to transfer a certain amount of money at a fixed frequency, you will not be required to physically write a check, prepare an envelope or worry about finding a stamp to mail the deposit. Your life will be much simpler from an investment standpoint and you can worry about things such as fishing, golf or running.

If you wish to automate your savings for retirement, it is critical that you have a plan in place to accomplish your goals. See the advice and create a plan for your future by visiting a CERTIFIED FINANCIAL PLANNER^TM professional. Take control of your future and you will enjoy less stress in life. See you on the pickleball court!

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Prudent Steps to a Secure Future

Posted on March 11, 2022March 11, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Our world is experiencing disruption on a global basis. War in Ukraine, inflation at a 40 year high, gasoline prices reflect the 70s, and continued impact of a rampant virus. Have you had enough? Yes, me too. However, my father taught me that words are cheap and action is riches. This was his statement to, “quit griping and start working” to achieve better results.

The people of Ukraine are suffering in ways that U.S. citizens cannot relate. All of us can sleep tonight in a warm bed, eat a nice dinner and drink water that is potable. Medical care is available and jobs are plentiful. Why I am stating the obvious? To provide you some perspective. Life is good in the United States even in the midst of all this disruption.

When experiencing moments of potential recession, it is critical that you review your future plans to determine if small adjustments are needed. It is important that we understand the current economic environment will pass (no, I don’t know when) and life as we know it will return for us. The resilience of our republic continues to amaze me.

The following steps should be considered to provide your family a more secure future. First, review your cash flow spending and determine the priority of these items. Do you actually need a new laptop or is it a want? Is a new car needed or do you simply want one? Also, remember it is better policy to make sound financial decisions based on your current cash flow, savings and needs rather than surrendering to the fancy marketing of the gadgets that make us more comfortable.

Next, reduce debt balance to zero as quickly as possible. The purpose of this is to relieve the pressure on your family’s budget. Any credit card balances should be paid monthly to eliminate the potential cost of credit through high interest rates. Federal Reserve Chairman Jerome Powell is recommending, next week, a 0.25% increases in the discount rate to be implemented for purposes of slowing the rampant inflation rate in the U.S. Additional rate increases are anticipated through 2022.

Another step is to review your portfolio to determine your true risk inherent in the underlying positions you own. In the past 12 years, the U.S. markets have rewarded equity investors. In the current market contraction, it would be advisable to review your positions for possible gains to protect the overall balance in the account. I am not suggesting market timing. However, I am recommending that you determine a price you would wish to reach before selling your investment positions. For example, lets assume we buy AstroWorld common stock, a fictitious company, for $35.00 per share and set a price of $70.00 at which we would sell the position. One of the greatest investors in history was a man named Peter Lynch. As the manager of the Magellan Fund of Fidelity Investments, his fundamental approach to investing was to perform the same process on each position he bought in the fund. If it was a good approach for him and the fund he managed, perhaps it may be good for your family.

Lastly, keep calm during market correction periods. Panicking only increases the probability that you will make poor decisions that could harm your family’s future for many years. By thinking about your financial decisions with a cool head, the likelihood of taking advantage of market declines allows you to “buy low and sell high”.

Of course, these steps will not ensure great returns or eliminate risk of loss. However, you will give your family and you the best chance to attain your retirement goals and security for the future.

One of the best methods of gaining confidence that your family’s finances are on the right track is to seek a complimentary “financial checkup” from a CERTIFIED FINANCIAL PLANNER^TM professional. Your investments, like your body, may suffer if proper attention is not given. See you on the jogging trail!

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Buy or Sell?

Posted on March 3, 2022March 3, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

Life has a way of keeping things interesting. After a long cycle of bull returns, the time for profit-taking has arrived. This is the process of capturing the gains in the investments that have performed well. I will explore some of the factors that are currently active in the economy, the markets and what you can do to maximize your family’s best interest.

The overall economy is improving in the United States. When I state that comment I sort of cringe thinking about the impact that is being felt by the families of our country. Inflation has reached a 40-year high at 7.5% according to tradingeconomics.com. Some of the factors leading to this excessive rate are labor shortages, soaring energy costs and supply chain disruptions. Based on a review of ktvz.com, March and April, 1980, inflation had risen to an unprecedented peace time level of 14.6%. Acknowledging that this rate is extremely high by today’s standards, the highest inflation factor in the United States was experienced in 1778 at 29.78% (Investopedia.com).

Improvements in market controls, inventory production, delivery methods and banking policies contributed to maintaining a more reasonable inflation experience for many decades. It is not unusual for the people of the United States to be subjected to a 2% – 3% inflation rate in our overall economy. However, in our modern world where we rely on transportation and housing that must be heated and cooled with natural gas or electricity, an inflation rate above 4% begins to reflect on people’s lifestyles.

The unemployment rate is at historic lows for our country. This rate often touted by politicians to show their outstanding work on the economy is misunderstood by the mass of Americans. To properly understand the application of the rate to the economy, you must consider that underemployed and those individuals not actively looking for work are not considered in developing the rate. For those individuals seeking employment, there are currently more job opportunities than workers to fill them. This is a big plus for our economy. During times of high demand for skilled workers the hourly wage rises. It is simple economics – supply and demand. When demand for something (or someone) rises and the supply (people looking for work) is static or lower, the price for labor will be higher.

Rising wages are good for workers until they realize the costs of goods rise along with them. Companies will increase prices on goods to cover the increased cost of labor while maintaining the profit margin necessary to continue operations.

Another factor affecting the economy is the supply chain disruption. Goods that are manufactured outside the United States must be imported for sale by businesses to the public. Recently, the shelves of some of the largest retailers have been limited or out of products demanded by the public for their functions in life. Don’t get me started about the “Toilet Paper Run of 2020”. There was plenty of the product for the current needs of people in our country. However, a rumor on social media stoking the fears of people caused a panic to buy greater quantities of toilet tissue. Some of the memes on social media were hilarious! At one point it appeared that toilet tissue would become the currency of choice due to the high value it held in the public’s mind.

All these factors create economic conditions of expansion or, more recently, contraction in the economy. People are subjected to many emotions in life. However, in my 34-year career, I have discovered two emotions that are most prominent when it comes to financial decisions about a person’s retirement and investment accounts – fear and greed. Memory fades quickly from the very positive returns of only a few months earlier when a market correction appears. People who have enjoyed almost 14 years of positive returns in their portfolios are suddenly stricken with the fact that markets can (and often do) go down.

Recently, I asked a client if she would sell her home if it went down in value. The look on her face was as if I had asked her to donate a kidney! Her response was “that is a long-term asset and has tremendous value to me”. I then asked the simple question, “Your retirement account is your lifetime asset. Why do you want to sell it when it is down?” She simply stated, “You are right.” The stock market is the only investment I am aware that people buy when its high and sell when its low. This is the opposite to increasing your overall lifetime return and cash flow.

Buy or sell? Each person must deal with their fear or greed. By remaining calm when others are frantic and scared, you will be rewarded with greater opportunity for growth over a lifetime. Make certain your risk tolerance is properly reflected in a diversified portfolio and your cash reserves will accommodate 90 – 120 days of living expenses. This correction will pass.

Your lifetime of financial security for your family is no laughing matter. To alleviate the stress from worrying about your finances, seek out a CERTIFIED FINANCIAL PLANNER^TM professional to help you build confidence in your future so you can laugh all the way to retirement and beyond.

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Inflation Perspective

Posted on February 11, 2022February 11, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

If you are living in the United States at this moment and have purchased any food, gasoline, household goods or clothing in the past month, you have noticed an increase in the cost of these items. This unanticipated increase in pricing is due to inflation. The definition of inflation is the increase of demand for certain goods above their available supply to be purchased.

In 2021, the U.S. Government printed significant volumes of money and distributed it back (and yes, it is the citizens’ money) to the people of the country to mitigate the effects of the pandemic. Layoffs, terminations and underemployment were significant during the pandemic and families needed assistance due to a lack of savings (Lesson #1). Economics can be a puzzling subject to many of us but it is recognized immediately and understood at the checkout counter.

Last Thursday, the U.S. Bureau of Labor Statistics issued the most recent inflation statistic for our country. Inflation rose to 7.5% which is a height not seen in the index since President Jimmy Carter was in office. Food, a necessary staple for survival, rose 7.4% during the last 12 months, gasoline has risen 40%, electricity 10.7%, natural gas 23.9%, new vehicles 12.9% and used vehicles 40.5%. On a lighter note, if all of the stress from the higher cost of living causes you to enjoy greater amounts of libation, alcoholic beverages increased only 2.7% in the last year.

The tools of the U.S. Federal Reserve Board, charged with keeping the economy running smoothly without such inflationary impact, are to increase rates at which banks may borrow funds to make loans, buy back U.S. government bonds and increasing reserve requirements of its member banks. Each of these actions has a corresponding reaction. For example, by increasing the discount rate for which banks would pay to borrow money from the Fed, the consumer requiring the loan will pay a corresponding higher rate of interest so the bank’s margin, or spread, on the loan will be maintained to cover expenses.

An increase in the discount rate ripples through the economy and impacts most, if not all, types of borrowing. Credit card and other personal debt will be more costly resulting in fewer people using such credit. The effect of this lowering of activity is that companies will sell fewer goods and, thereby, lowering the inflationary impact because the balance of demand and supply are closer to equilibrium.

As a consumer, there are a few steps you can take to help your family combat this rising of costs. First, review your family’s budget to determine if you had planned any purchases of durable goods or automobiles in the next couple of years. If possible, delay those purchases until inflation has decreased to a more reasonable level allowing the pricing of the items to lower.

Second, increase your savings. The reason for the government sending families in the U.S. thousands of dollars in stimulus and additional, protracted terms of unemployment benefits is due to a lack of savings for these families. Americans are poor savers compared to citizens of other countries. According to statista.com, for the period of 2010 through 2020, the following countries’ households, and their respective average savings rates, are the highest in the world: 1) Austria – 17%; Belgium – 14.3%; Canada – 15%; Czech Republic – 8.1%; and Denmark – 7.7% round out the top five countries.

The United States, in comparison to the above savings rates by countries, had a savings rate in December 2021 of 7.4% according to ycharts.com. To help our families lessen the impact of inflation, which will continue for approximately two years by my research, reduce spending and increase savings as significantly as possible. Further, delay any large purchases of durable goods unless it is absolutely necessary. Increase deferrals and contributions to retirement accounts to help reduce the outlay of funds for taxes.

There are many “tools” that families can use to mitigate inflationary pressure on their retirement accounts, reserve savings and family budget. A CERTIFIED FINANCIAL PLANNER^TM professional can help guide you with your cashflow planning and management process. You should be seeking confidence and comfort during inclement times of the economy. Don’t allow your family’s comfort to be blown about like a ship out at sea when the financial winds blow. Take charge of your financial situation today.

See you on the jogging trail!