The Fed Has A New Approach To Inflation

The Fed Has A New Approach To Inflation

What it means for your savings, credit-card debt — and your mortgage rate

Sept. 4, 2020   By Jacob Passy

The Federal Reserve is shaking things up — which is both good and bad news for consumers.

The Fed made some of the biggest changes to its policy in years following an extended review. The central bank has revised its approach to inflation and the labor market in a move that could usher in an extended period of low interest rates.

But the new approach won’t mean that consumers will save money across the board. “The Federal Reserve’s new strategy could divide the landscape for the various financial products important to consumers,” said Lynn Reaser, chief economist at the Fermanian Business & Economic Institute at Point Loma Nazarene University.

Here’s how the Fed’s new policy will affect Americans’ finances:

What did the Fed change?

The Fed is now officially less concerned about high inflation. Moving forward, central bankers will target inflation that averages 2% over time. This means that following a stretch with low inflation, the Fed might allow inflation to run above 2% for a period of time.

Along these lines, the Fed will concern itself less with the strength of the labor market. “A tight labor market is no longer correlated to inflation,” said Dan Geller, a behavioral economist and founder of consulting firm Analyticom.

In the past, the Fed’s official view was that a strong labor market could cause inflation to jump — as a result, the central bank would move to raise rates even if higher levels of inflation had yet to materialize when the job market was especially strong.

The new policy will allow the Fed to keep rates low even if the job market rebounds and inflation picks up. As a result, some have suggested that it may be many, many years before the central bank hikes rates again.

Americans will save on credit-card interest because of the Fed’s new policy The good news for any Americans with credit cards is that the annual percentage rate on your cards should go down — or remain low — for the foreseeable future.

To continue reading, please go to the original article here:

https://www.marketwatch.com/story/the-fed-has-adopted-a-new-approach-to-inflation-heres-what-it-means-for-your-wallet-2020-08-31?mod=personal-finance

Making Financial Decisions Is Hard, Overcoming Barriers

Making Financial Decisions Is Hard, Overcoming Barriers

By Philip Fernbach & Abigail Sussman Market Watch

Teaching people about money doesn’t seem to make them any smarter about money – here’s what might

Making financial decisions is hard, but three promising ideas are helping Americans overcome barriers. If the average American went in for a financial checkup, he or she might get rushed to the emergency room. Forty-four percent of us can’t cover a $400 out-of-pocket expense, and 52% of American households have no retirement savings. We seem to be chronically poor at making financial decisions. We commit costly mistakes across all areas of personal finance including decisions about savings, investing, budgeting and borrowing.

Diagnosing the problem is easy: We make mistakes because financial decision making is hard, and we lack an understanding of the decisions we face. Finding a cure is much more difficult. To many, the obvious treatment is financial education, but recent research suggests that financial education is not effective.

Some promising new ideas such as “just-in-time” education and “nudges” to help us make better decisions are starting to emerge as alternative approaches.

Ineffective Programs

Governments around the world have invested huge resources in initiatives aimed at improving financial literacy, such as the Federal Deposit Insurance Corp.’s My Smart program, which helps low-income individuals develop financial skills.

Unfortunately, research into the effectiveness of these programs paints a grim picture. A recent meta-analysis looked at every known study examining whether a financial-education intervention — such as training sessions, classes or one-on-one counseling — improves positive financial behaviors and financial health. Across all those studies, there was almost no benefit. Those participating in financial education were essentially no better off.

If we want to come up with better solutions, we need to understand the psychological barriers to financial education. Why is it so hard for people to learn?

Challenges To Learning

The first reason is relevance. The mind is not like a computer that can store arbitrary amounts of information. Instead, we tend to retain only what is useful for navigating our current circumstances.

To continue reading, please go to the original article here:

https://www.marketwatch.com/story/financial-education-flunks-out-and-heres-whats-being-done-about-it-2018-10-10

Smart Banknotes Will Be The Cash Of The Future

The Future Of Money

Smart Banknotes Will Be The Cash Of The Future

By Ignacio Mas  Executive director and co-founder of the Digital Frontiers Institute

Must we pit digital money in a battle against hard cash? Must we really swear our full loyalty to one or the other?

What if a banknote could function as a sort of digital prepaid card, on which you could electronically load value using your mobile phone—except that unlike a card, it could also be accepted at the corner shop in the same way banknotes are passed around today?

In our minds, money assumes different physical states: a stash of money feels rock-solid, then it speeds up and becomes liquid, and, ultimately, heats up and vaporizes away. Such physical-state metaphors about our money are deeply entrenched in our language; they are how we think about money.

So it seems fitting that money can now sustain actual changes of state. It flows between atomic coins and notes as well as digital entries in computerized ledgers. Both the physical and digital have their advantages.

Hard cash is fantastic: Everyone can accept it through mere visual and tactile inspection, and it has no memory. Digital cash is fantastic for different reasons: You can zip it anywhere instantly, and it leaves a trail. Which is “better” depends on the circumstances, such as the distance between the transacting parties and their preference for anonymity or traceability.

The new should replace the old only if it is better in every way—but for all its whizbang promises, digital money isn’t. The problem is that these two types of money are hard to reconcile. Unlike metaphoric money that can change from a solid to a liquid to a gas, a banknote stubbornly holds its form. We can convert digital money into hard cash and back again by taking a trip to the ATM, but this takes time, effort, and accessibility.

And for that, we blame cash. Why? Digital money is the new upstart, after all—shouldn’t we blame it for not working well with the system that came before it? Why is it cash that should have to change?

To continue reading, please go to the original article here:

https://projects.qz.com/is/what-happens-next-2/1389715/future-of-money/

5 Lessons I Learned From Growing Up In The Ghetto

5 Lessons I Learned From Growing Up In The Ghetto  

(And How They Helped Me On The Road To Financial Independence)

Post From Peerless Money Mentor

“Just like a rocket ship needs a lot of fuel (energy) to escape Earth’s gravitational pull before it can get into the freedom of space, to escape the ghetto we needed to expend a lot of energy in the form of hard work to gather enough money to escape the gravitational pull of the ghetto and into the freedom of a better life.” -Jack The Dreamer

Today’s post is written by Jack who blogs about fire, personal finance, and minimalism at Jack The Dreamer.

I first came across Jack’s blog when an article of his was featured on Rockstar finance.  The article was titled What Living On A Farm For A Year Taught Me About Financial Independence And Life.  I really enjoyed reading it, and I think you will, too!  Check it out after reading this post. Instead of writing about the lessons he learned on the farm, today he will be sharing the lessons he learned while growing up in the ghetto.

The Inspiration

Peerless Money Mentor’s article “Growing Up In The Ghetto” inspired me to reach out to him because I also grew up in the ghetto and eventually my family made it out with money from starting our own business. Reading his article was very nice because I was like, “Ah! Someone who grew up in similar circumstances and understands!” His article made me re-assess how growing up in the ghetto during my formative years affected me. I say this because ever since we left, I never really took a good hard look at how the ghetto affected me, from how I walked and talked, to how I dressed, thought, and ultimately, how it affected my path to being financial independent.

Anyways…

Without further adieu, here are the 5 Lessons I learned from growing up in the ghetto and how they relate to striving for financial independence.

1) Being Different Can Make You Stronger (And Richer)

We moved to another ghetto outside of New York City. My parents each worked 3 jobs and saved up money for 3 years before opening a restaurant. They opened a restaurant because it didn’t require a college degree, their English wasn’t that good, and it allowed them to be their own bosses.

Also, they came from a small business background in Thailand, and according to Robert Kiyosaki’s Cash Flow Quadrant from Rich Dad, Poor Dad, once you’re in a certain quadrant, you tend to stay there.

The 4 quadrants are employee, small business employer, big business employer, and investor.

My family have been in the small business quadrant for close to a hundred years in Thailand, and I’m looking to grow myself beyond that and break the dynastic cycle of platitudes.

But that’s a post for another day. Back to the story.

To continue reading, please go to the original article here:

https://www.peerlessmoneymentor.com/5-lessons-i-learned-from-growing-up-in-the-ghetto-and-how-they-helped-me-on-the-road-to-financial-independence/

Sustaining Wealth is Harder Than Getting Rich

Sustaining Wealth is Harder Than Getting Rich

by Ben Carlson

The Forbes 400 list of the world’s richest people looks fairly similar at the top every year.

Buffet, Gates, Bezos, Bloomberg and the Walton family are at the top of the list in some order year in and year out (they’ve been joined by Mark Zuckerberg in recent years as well).

But this list isn’t as stable as it may appear.

Over 70% of those who made this list (or their heirs) lost their status in this rarified group between 1982 and 2014. Getting there is easier than staying there for most.

High-income earners have a similarly difficult time staying at the top.

Research shows over 50% of Americans will find themselves in the top 10% of earners for at least one year of their lives. More than 11% will find themselves in the top 1% of income-earners at some point. And close to 99% of those who make it into the top 1% of earners will find themselves on the outside looking in within a decade.

I was reminded of these studies this past week after reading two stories of financial folly. The first was Spencer Pratt, the reality TV star from the MTV show The Hills (I may or may not have watched this show at one point).

CNN Money profiled how Pratt and his wife, Heidi, made and then spent millions:

By 2008, they were crazy famous, ridiculously rich, and it seemed impossible that they ever wouldn’t be.

“We were more famous and [making] more money than Kim Kardashian,” Pratt says.

But as frosted tips fell out of style, so did Speidi. MTV canceled The Hills after six seasons, and the Pratts’ luxurious lifestyle quickly caught up to them. After years of splashing $30,000 on shopping sprees and ordering $4,000 bottles of wine at dinner, the now-married couple had officially blown through their $10 million fortune. Tabloid OK! Magazine announced the news in all caps, writing“HEIDI MONTAG & SPENCER PRATT ARE BROKE.”

“It’s really easy to spend millions of dollars if you’re not careful and you think it’s easy to keep making millions of dollars,” 34-year-old Pratt says. “The money was just coming so fast and so easy that my ego led me to believe that, ‘Oh, this is my life forever.’”

To continue reading, please go to the original article here:

https://awealthofcommonsense.com/2018/07/sustaining-wealth-is-harder-than-getting-rich/

How Billionaire Investors Are Protecting Their Wealth

Animation: How Billionaire Investors Are Protecting Their Wealth

Jeff Desjardins 

It can take a lifetime to build a fortune of Buffett or Dalio sized proportions.

But, as all billionaires know, there is always risk present in the market – and even though a catastrophic geopolitical or financial event is very unlikely, it is important to be prepared for anything.

How Billionaires Protect Their Wealth

Today’s animation comes to us from Sprott Physical Bullion Trusts, and it shows the worries that are keeping billionaires up at night, and how they are positioning themselves to preserve wealth in any market environment.

https://www.youtube.com/watch?v=IshYIYyNopU

Let’s take a closer look at the actions that these billionaires are taking, and why they are so concerned in the first place.

The Cash Misconception

Most billionaires are surprisingly cash poor on a relative basis. The average billionaire only holds 1% of their net worth in liquid assets like cash because the vast majority of their fortunes are usually tied up in business interests, stocks, bonds, mutual funds, and other financial assets.

Wealth is not stagnant, and the portfolios of these billionaires will move along with the health of the economy and markets. This can either make their wealth flourish – or any market crash could damage their entire fortune.

For this reason, billionaires are very concerned about market fluctuations, and they actively seek ways to protect their wealth even in the wake of a catastrophic geopolitical, economic, or monetary event.

How Billionaires Are Positioned

In two earlier infographics, we outlined the current geopolitical risks that have elite investors worried, as well as the types of market risks that could materialize.

Keeping the above points in mind, billionaire investors are positioning their portfolios accordingly.

Warren Buffett

By accumulating massive amounts of cash in Berkshire Hathaway, value investor Warren Buffett has preserved his optionality. If a downturn hits the market, he can deploy the cash and get assets at bottom barrel prices. (Sidenote: see the size and scope of the vast Warren Buffett Empire)

David Einhorn

The billionaire founder of Greenlight Capital believes that financial repression and monetary debasement employed by central bankers can be neutralized with gold.

Paul Tudor Jones

The reclusive hedge fund manager, who called the 1987 crash, is being very careful in choosing the assets he holds. He has observed bonds are the most expensive they’ve ever been by virtually any metric – and has joked that he’d rather hold a burning chunk of coal than a U.S. Treasury bond.

Ray Dalio

The founder of the world’s largest hedge fund is adamant that 5-10% of a portfolio should currently be held in gold. Not surprisingly, in November 2017, Bridgewater loaded up on its gold holdings by 525%.

No matter the size of your investment portfolio, it’s worth studying how the world’s most elite investors are protecting their fortunes. By hedging against big events and diversifying their investment portfolios to include safe havens, they maximize their chances for success in any investment environment.

https://www.visualcapitalist.com/animation-billionaire-investors-protecting-their-wealth/

On The Importance Of Putting First Things First

On The Importance Of Putting First Things First

By J.D. Roth   

Holy cats! That was an interesting 72 hours.

For the past three days, I’ve been fighting a terrible cold. Or maybe the flu. I’m not sure which. It hasn’t been fun.

On Sunday, while I was in Florida attending an early-retirement retreat, I woke with crap in my lungs. All day, I was coughing and sneezing and hacking. I still felt relatively strong, though, so I made sure to get in my four-mile training run. (I made two goals involving running this year: I want to run at least one mile every day and I want to run a half marathon at the end of March.)

On Monday morning, I felt worse. Still, I rolled out of bed and tromped the one mile I had scheduled for myself. It was a l-o-n-g mile, let me tell you. I was wheezing and gasping the entire ten minutes.

The six-hour flight home to Portland on Monday afternoon was miserable. I hate flying when I’m sick, and I know how much that sucks for other passengers. I huddled next to the window and tried not to breathe too deeply. Breathing too deeply rattled the crap in my lungs and sent me into fits of coughing, so I mainly zoned out and made an effort to take shallow breaths.

“You sound terrible,” Kim said when she picked me up from the airport. That night, she made me sleep in the guest room.

I spent all yesterday fighting a high fever. I tried to write an article, but it was a futile endeavor. I couldn’t focus. I couldn’t write or read or even watch TV. (I starting watching the new Blade Runner movie, but I couldn’t focus for more than a few minutes at a time.) I could barely focus on video games.

In the afternoon, I felt a little better, so I decided to take the dog for a walk. “I have a three-mile training run scheduled today,” I thought to myself. “I probably shouldn’t do that. But surely I can do just a mile.” I put on my running clothes, grabbed the leash and the dog, and headed outside.

After two minutes of running — and less than a quarter mile — I pulled up short. I couldn’t catch my breath. I felt like I was going to faint. I walked the dog back home and crawled into bed.

And that’s how my goal of running at least one mile each day in 2018 came to an end.

Blind Pursuit Of The Less Important

My example of blindly pursuing a small goal at the expense of the Big Picture is relatively minor. It’s not a big deal. But it’s not hard to find examples of people doing this on a grander scale, which can lead to all sorts of complications.

I’ve noticed, for instance, that many people who discover the ideas behind early retirement become laser-focused on their “number” — the amount they need to save in order to reach financial independence (a.k.a. FI). They rearrange their lives so that they can save 50% or 70% or 85% of their income, but never take time to figure out what they’re saving for. Why are they saving for financial independence? What’s the purpose?

Then a crisis occurs and they realize the goal they’ve been pursuing was a red herring. Financial independence and early retirement aren’t the actual objective — and they never were. A happy life filled with meaning and purpose is what they really want; financial independence is merely a tool to help them achieve it.

To continue reading, please go to the original article here:

https://www.getrichslowly.org/first-things-first/

Avoiding the fate of the dodo: How To Prepare For An Uncertain Future

Avoiding the fate of the dodo: How To Prepare For An Uncertain Future

By J.D. Roth

Our financial decisions are based on our expectations for the future.

We save for retirement because we expect we’ll live a long time in old age, a period where we expect to be relatively unproductive. We invest in stocks because we expect the market to provide outsized returns when compared to other asset classes.  We set aside emergency savings because we expect that bad things will happen — if not tomorrow, then next week (or next year).

We base our expectations on past experience — both our own experience and the experiences of others.

We expect to live a long time in old age because statistically most of our contemporaries live a long time in old age. We expect the stock market to provide excellent returns because for the past 100 years, that’s what the stock market has done.We expect bad things to happen because bad things always happen.

Generally speaking, there’s nothing wrong with this method of planning. It works.

When we base our expectations for the future based on what’s happened in the past, we tend to get good results. We accumulate money for when we’re no longer able (or willing) to work. Our investments grow. We have a cash cushion for when the car breaks down or little Jimmy breaks his leg.

Beyond All Expectations

But what happens when the old patterns break? What happens when past data becomes meaningless? That’s the subject of an intersting article from Nick Maggiulli at Of Dollars and Data.

He tells the story of how the dodo went extinct. Evolving in an ecosystem without predators, these birds had no fear of humans. They had no expectation that another creature might hunt them down and eat them and end the species.

The Dodo

Maggiulli writes:

From the perspective of the dodo, the arrival of humans (or any other large predator) was outside the realm of its evolutionary grasp. Anything the dodo had approached previously had not tried to eat it. However, the arrival of humans broke the old pattern. It was beyond all expectations.

This idea is directly relevant to how investors use historical financial data to make decisions about the future. We assume that history is a great guide for what is to come, which is only sometimes true. We rely heavily on previous patterns…until they break. This is the classic black swan problem explained by Nassim Taleb, and highlights the difficulty with relying on financial history to make predictions.

“Just like the dodo,” Maggiuilli says, “investors are on their own island of financial history with no clue what will wash ashore from the seas of tomorrow.”

To continue reading, please go to the original article here:

https://www.getrichslowly.org/uncertain-future/

4 Risky Life Decisions Millionaires Made — But You Shouldn't

4 Risky Life Decisions Millionaires Made — But You Shouldn't

By Emily Guy Birken  19 June 2018

When you read about self-made millionaires and billionaires, it can often seem as if their success was an inevitable result of their tenacity and savvy decisions. But sometimes those choices are less savvy and more borderline irresponsible — and it would be foolhardy for most of us to try some of these stunts in our own lives. The stories of people going from rags to riches may be inspiring, but most of us need to remain practical. That's why you should avoid copying these four life decisions successful millionaires have made. (See also: 5 Bedtime Routines of Famous Financial Gurus)

Dropping out of high school

There are a number of hugely successful individuals who did not complete their high school educations, and it did nothing to stop them from reaching the top of their fields. For instance, Wendy's founder Dave Thomas, Tumblr developer David Karp, director Quentin Tarantino, and Virgin Atlantic founder Richard Branson all dropped out of high school and still went on to become multi-millionaires.

Yes, these millionaires were able to build wildly successful careers without completing their formal educations, but it's a mistake to assume that most people can emulate their irregular paths. To begin with, a worker without a high school diploma earns an average of $520 per week, according to the Bureau of Labor Statistics. Assuming a year of constant earning (which is not necessarily the case, as many workers without a diploma cannot count on steady employment), this works out to $27,040 annually.

Just completing high school means a bigger paycheck, as workers with a diploma earn a median weekly income of $712, or $37,024 per year. In addition, high school dropouts have the highest rate of unemployment in America at 6.5 percent. Workers with at least a high school diploma have an unemployment rate of 4.6 percent, while the national unemployment rate is 3.8 percent overall. Clearly, completing your high school education is one of the surest ways to ensure financial stability.

This is why Dave Thomas, the founder of Wendy's, earned his GED in 1993 at the age of 61. He described dropping out of high school as one of the worst mistakes of his life, and he did not want his subsequent success to encourage young people to quit school.

Putting your life savings into your business

From Elon Musk, who funneled the money that he earned from the sale of PayPal into Tesla and SpaceX, to Sara Blakely who put the $5,000 she had managed to save from her sales job into the business venture that became Spanx, there are a number of successful entrepreneurs who gambled their own funds on their business ideas.

Between these inspiring stories and the prevalence of such gambits working out in movies, it would be easy to assume that being willing to put your own money into a business venture is the secret to entrepreneurial success.

To continue reading, please go to the original article here:

https://www.wisebread.com/4-risky-life-decisions-that-millionaires-made-but-you-shouldnt?ref=car

6 Things I Learned About Money From Famous People's Wills

6 Things I Learned About Money From Famous People's Wills

By Carrie Kirby

I've always been fascinated by William Shakespeare's will. Specifically, by the way he left his wife his "second-best bed," especially since historians are at odds over what he meant by it.

 Was this an insult to a spouse he didn't get along with, or a tender gesture? After all, since everything was handmade, furniture was much more valuable back in the 1600s than it is today.

Thinking about Shakespeare's seemingly odd bequests made me realize that what people list in their wills says a lot about what they value.

So when Ancestry made a searchable database of 170 million will and probate documents available to its subscribers, I eagerly dove in. Of course, most Ancestry members use this information to learn more about their family members; the site touts these records' value in particular for African Americans searching for family history, since wills from the slavery era may name their ancestors as property.

In fact, when I started searching well-known names, the first one I found was a slave owner: George Washington, whose will calls for the freeing of his slaves after Martha's death. (He also called for one, named William Lee, to be freed as soon as he died, which makes sense because Lee was Washington's personal valet.)

What can we learn from the wills of notable dead people? Here's what famous people's taught me about money and finances.

1. Furniture Was Really Valuable

Like Shakespeare, Paul Revere made specific plans for his household furniture after his death; he left it all to his only unmarried daughter — but only if she was still single by the time he died.

 Revere no doubt figured that if his daughter had already established her own household, she'd have no room for dad's tables, chairs, and beds, second best or otherwise.

2. Families Held Onto Silver No Matter What

Louisa May Alcott's family often went hungry in her childhood; in fact, poverty drove Alcott to start writing. Yet, they never became desperate enough to sell the "family silver" — Alcott left her share to a niece in her will.

Alcott's will also made me wonder if the famous author, who never married, had a love affair or some other skeleton in her closet to cover up, because she called for all her letters and manuscripts to be burned upon her death.

To continue reading, please go to the original article here:

https://www.wisebread.com/6-things-i-learned-about-money-from-famous-peoples-wills?ref=seealso

Don't Make These 6 Dumb Mistakes With Your Financial Windfall

Stop! Don't Make These 6 Dumb Mistakes With Your Financial Windfall

By Kentin Waits

Maybe your lottery numbers finally came in. Maybe a favorite aunt remembered you in her will. Heck, maybe one day while you were shootin' at some food, up through the ground came bubblin' crude — oil that is! Texas tea! (See also: 50 Smart Things to Do With Your Tax Refund)

Whatever the source, you're the lucky beneficiary of a financial windfall. Revel in it and protect your new-found wealth by avoiding these six dumb moves.

1. Act Impulsively

Receiving money unexpectedly is exciting, and it can send even normally down-to-earth folks straight into the stratosphere. In those dizzying weeks and months following a financial windfall, we're really not ourselves, so making big decisions during that time is usually a terrible idea.

 Instead of spending or investing immediately, take a time out. Collect yourself. Adjust to your new wealth for six months or a year and just let the cash sit in a money market account or CD. Remember, high emotion and sound decision-making usually don't mix.

2. Buy a New Car

Even if you're paying cash, there are many reasons to avoid buying a new car. Not only is it the most cliché thing you can do with a windfall, but it's also one of the quickest ways to lose roughly 25% on every dollar you spend.

The minute you sign the paperwork and drive off the lot, that new car becomes used. Depreciation takes a quick and silent bite out of your new ride. Let someone else absorb that financial hit; buy a pre-owned late-model car that's still under warranty.

3. Loan Money to Friends and Family

Making loans to friends and family is a sure way to take the wind out of your financial windfall. Loans have a curious way of never getting repaid, and once your bank balance dwindles, hard feelings can set in and slowly erode relationships.

To continue reading, please go to the original article here:

https://www.wisebread.com/stop-dont-make-these-6-dumb-mistakes-with-your-financial-windfall?ref=seealso