Fitch, one of the three big bond rating services last week downgraded U.S. government debt to AA+ from AAA. That is shocking news, but if you look at the reasoning, it makes sense. Among the reasons Fitch sited for this move is that interest rates have increased, which makes it a lot more expensive for the government to borrow. Deficits remain high. That means the government keeps spending more than it receives in taxes. That was less of a problem in a low-rate environment, but now that rates are higher, the cost it pays on borrowing will keep going up and become a bigger part of the government’s budget. We want to talk about what this means for you. Today.
How does this impact you? It means that you are not alone. Everyone, and we mean everyone, struggles with how to balance spending, borrowing, and saving. Balancing a budget is a problem for young people, baby boomers, companies, and governments. As interest rates have increased, interest expenses are taking up a larger part of every borrower’s budget. Meanwhile, if you are among the lucky people who have savings, this means you have more, and better investment options than you had in the past. We want to help you decrease your borrowing and increase your savings so that you have a better future. UOU!
The weekend is coming.
It is Friday, the weekend is coming. Do you tend to spend more during the weekend shopping or going out with friends? If so, consider some of the planning/ goal achieving techniques we have suggested in the past. Have you tried setting S.M.A.R.T. Goals? Some people report that it is useful to write down those goals and even more useful to share your goals with others because it helps keep you accountable.
In addition, if you know that there may be temptations coming, we invite you to try WOOP! WOOP encourages you to plan today what you will do tomorrow or over the next few days. Then, think about possible pitfalls that might derail your plan. Next, envision yourself overcoming the temptation. It only takes a few minutes and studies show that WOOP helps many people.
Long term planning.
This weekend, or the next time you have a few hours off, why not think about where you are with your long-term financial goals. Spending less now will increase your financial freedom in the future. What do you want to achieve and what are the trade offs you can make to get there? For most people the biggest budget items are housing, followed by transportation and food. While housing is often the biggest item, it is the hardest to change. It takes a lot of thought and time to change your housing costs, but if you have credit card debt and are really struggling to make ends meet, it can make a big difference to find a cheaper living situation. The historical rule of thumb is to spend 25%-35% of your income on housing. For young people in a big city today, that may be a difficult benchmark. Nevertheless, the less you spend on housing, the more you have left for everything else.
The easiest thing to change is discretionary spending such as dining out or other forms of entertainment. After years of being locked up, we advocate getting together with friends, but if you are struggling with deficit spending, consider finding less expensive alternatives to those discretionary items.
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