The best of times, the worst of times: Saving, borrowing, investing and taxes in a stormy economy

These are complicated times for the U.S. economy, which means they’re complicated for our personal finances, too. So my “Friends Talk Money” podcast co-hosts Terry Savage and Pam Krueger and I released an episode to offer some timely, apolitical guidance on saving, borrowing, investing and taxes. I thought I’d share some highlights.

You can listen to the entire 20-minute “Friends Talk Money” episode wherever you get your podcasts.

With a nod to Charles Dickens, personal finance columnist and author Savage said we’re in the middle of a “tale of two countries.” You know, best of times/worst of times stuff.

“On the one hand, we have some really great economic news about growth and about jobs. And, of course, the stock market — as we record this, anyway — reaching new all-time highs,” Savage said.

Krueger, the founder of the financial adviser vetting company Wealthramp and a public TV money host, concurred. “The economy fell off a cliff last year. Now, look at where we are,” she said. The U.S. added almost 950,000 jobs in July, Krueger noted, and Americans have increasingly been spending more, shopping, eating out and traveling.

See: Jobless claims drop to pandemic low of 348,000 in sign companies still hiring despite delta

Storm clouds over the economy

“On the other hand,” Savage said, “we have people in America who are worried about things like foreclosures and evictions and repaying student loans when the moratorium ends.” Unemployment benefits are also running out for many, she noted.

Consumer prices have been rising by 5.5%, which is tough for many Americans. But higher inflation also means that Social Security recipients may see 6% increases in their monthly benefits in 2022 as a result.

It’s all why, I said, personal finances today are even more personal than normal. The way each of us is managing financially is very different. Some of us have been fortunate to be able to keep our jobs or get new ones and earn a decent income. Others have not. Some of us have had savings; others haven’t.

“It’s one big economy and there’s so much uncertainty about the future,” Savage said. “So, if you’re worried about the economy, you’re not alone. The pros are worried, too.”

The advice from the three of us? Savage put it well: Diversify your investments cautiously, hedge against potential financial troubles by increasing your savings if you can and start thinking about preparing for possible changes in the U.S. economy and tax system.

The Federal Reserve has been keeping interest rates low with a wary eye on rising inflation. But the future of inflation looks highly connected to the COVID-19 pandemic. If the delta variant keeps making things worse, higher prices for airfares, hotels and restaurant meals may temper. If the vaccination rate goes up and the coronavirus poses less of a threat, people may boost their spending and inflation could then rise.

What about interest rates?

Interest rates, however, are likely to start heading up at some point. So, Savage said, “wait a minute before locking up your money [in the bank] in anything longer than a money-market account.” Instead, wait for interest rates to increase and then lock in higher yields on bank CDs.

Conversely, Savage advised, “please refinance your 30-year mortgage” because, she said, “I can’t imagine we’ll see rates much lower.”

The huge run-up in the stock market in 2021 (the Dow
has gained about 15%) means this is the time to assess your investment holdings.

If you’re in the stock market, Krueger said, “Take a look at your own positions. They’ve swelled. You may not even realize that you now own a lot more U.S. large-company stock than you really ever intended to.”

It may be time to diversify your investments, reducing the amounts you have in stocks and increasing your holdings in things like savings, bonds and real estate.

Also, Krueger asked, “Do you really have a savings cushion?” If not, this is the time to build one and take a close look at your investments, perhaps in consultation with a financial adviser.

See: More Americans have $1 million saved for retirement than ever before

Be cautious about tax moves

Don’t, however, make any rash moves due to fear that your taxes will go up.

While President Biden has proposed raising the top rate on capital-gains taxes, that’s still just talk. And odds are slim that Congress will approve higher income taxes, except perhaps for the wealthiest Americans. I was Money magazine’s Washington correspondent for five years and learned that a lot can happen on the tax front between what a president proposes and what Congress ultimately does, if anything.

Also read: How can I make sure that the money I’ve saved will last my whole retirement?

Said Krueger: “The question is: When should you start planning for higher taxes?… Right now, you can’t control what may or may not happen from Washington and policy makers.”

Instead, she suggested, “start looking at how you’re investing and how much you’re saving and how you’re saving. This is the time to prepare for things you can control.”

Richard Eisenberg is the Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and Managing Editor for the site. He is the author of “How to Avoid a Mid-Life Financial Crisis” and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS Moneywatch. 

This article is reprinted by permission from, © 2021 Twin Cities Public Television, Inc. All rights reserved.

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