Investing? In This Economy?

With all the uncertainty and volatility in today’s world, its often difficult to understand what to do with your personal finances. We’re here to outline some of the basics about savings, spending and student loans in a confusing time.

With the market’s recent unpredictability, there are many questions about whether someone should change their investing strategy. Is now the time to invest more, less, or stop altogether?

During times of market movement, CFPs often advise investors to prioritize the fundamentals:

• Start with a safety net. Have savings in place to cover at least one month’s expenses.
• Get rid of “bad” debt.  Aim to eliminate high-interest debt like credit cards or personal loans.
• Grow an emergency fund.  Try to extend the safety net of one month’s expenses into 3-6 months of liquid savings for a fully realized emergency fund.
• Save for retirement goals.  Contribute to retirement accounts, taking advantage of company match policies.

Beyond the basics, investors shouldn’t get too caught up in the market changes. As CFPs will suggest, now might not be the time to max out a 401(k) contribution, but it might help people sleep better at night when they add more savings to their emergency fund.

What about those who are first-time investors? With the volatile markets, they are probably wondering if now is the time to start investing. But, before throwing money into the market, new investors should consider their goals and where money will work best for them:

• 0-3 Years.  Investors thinking about short term goals might consider putting their money in a high-yield savings account.
• 3-10 Years.  A mid-range investment strategy can involve stocks, ETFs, mutual funds, bonds or high-yield CDs.
• 10+ Years.  This long term growth investment strategy is measured in decades, not days in long-term retirement accounts. Investors can also continue to invest in ETFs and mutual funds.

As things change day to day, and even hour by hour, CFPs remind investors to assess, and not obsess over their investments, especially in the long term.

Consider opting out of constant investment updates from your smartphone. Instead, consider how current investment strategies align with goals in the long term.

Is Now the Right Time to Refinance?

With the Federal Reserve cutting rates for the fifth time in eight months, people wanted to know if they should refinance their homes or student loans in response.

Refinancing a Home

When it comes to refinancing a mortgage, knowledge is power. First and foremost, a homeowner should have an idea of how long they plan to live in the property.

If it’s their forever home, refinancing might be a good idea. But, if they plan to move in a few years, they’ll need to crunch the numbers.

Homeowners should see what their new monthly payment would look like with a new rate, but in addition, they’ll need to figure out the closing costs and fees associated with a refinanced mortgage. From there, it just takes a bit of math. However, please note that this is an oversimplified calculation:

Total closing costs / monthly savings = Number of months required to live in the home before break even

Depending on a person’s timeline, the months might make sense. For others planning on selling soon, the monthly savings won’t make up for the closing costs required to refinance.

Refinancing Student Loans

With rates dropping, many are considering refinancing their student loans to a lower monthly rate. However, the choice to refinance is personal, and just because interest rates might be lower doesn’t mean it’s the right time for every borrower.

Similar to refinancing a mortgage, borrowers should take a look at all the information available to them. Find out the new rate they’d qualify for, the new terms of refinancing, and any fees that might be associated with a new loan.

Additionally, those with federal student loans should think about the benefits they’d lose in refinancing, such as Public Service Loan Forgiveness and income-driven repayment. Losing those benefits might not be worth refinancing for.

Sometimes  refinancing student loans can lead to a lower monthly payment and some serious savings in the long run.

The decision to do so should be made only after considering all the angles—not just because there’s a flashy lower interest rate.

One thing that is certain? Interest rates aren’t predictable. No one knows for certain when they may rise again. Also, market predictions can turn out wrong, and the best way to make a decision is based on the knowledge a person has now.

What About Emergency Finances?

These uncertain times also led people to ask about what their emergency savings should look like. Do “savings” mean literal cash on hand? Is it okay to put savings in a money account? Can I consider credit or equity as good as savings?

Some might feel more comforted with a physical stack of money but because our economy has become so cashless, that money is just as useful in a bank account accessible by an app or ATM. Liquid savings doesn’t have to mean literal cash.

While oftentimes a high-limit credit card or untouched HELOC can feel as solid as liquid savings, credit limits can disappear, and true liquid savings means cash in the bank.

People can’t guarantee their credit limits, or HELOC rates will stay the same, and in case of emergencies, having liquid savings can make things easier.

Budgeters should avoid putting immediate savings in a money market account since limits on withdrawals per month could cause a snag when a person truly needs the money. However, if a person’s emergency savings is ballooning past the 3-6 month mark, they might consider a money market account then.

It’s important to consider your financial situation in these times and understand what options that you have to help navigate these times. It can also be beneficial to speak with a CFP or financial advisor to get further advice.