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Strategies As New Year Begins

kcfield
  |     |   95 posts since 2012

While it is encouraging that CME is predicting rate increases for 2022; we have no assurance that these will result in significant savings and CD rate increases--especially in light of the continued unfavorable loan-to-deposit ratios. Additionally, we are aware that even snagging a relatively high savings or CD rate will not overcome the erosion of our currently high rates of inflation. During these times, it seems important to consider and exercise strategies over which we have control. I have listed a few below; and must offer the disclaimer that these are the strategies I am personally considering. I do not have the credentials (CFP, CPA, CFP) to officially offer financial advice to others.

1) Making extra principal payments towards debts: Paying down debt has the same effect as putting money into savings. For example, if you make an extra 1000.00 payment on a 9% credit card debt, it is like earning 9% in savings. Even if your only debt is your mortgage, the same principle applies: If you have a 4% mortgage and make an extra 1000.00 principal payment it is like earning 4% (and even more than that if your payment accelerates the time frame by which your PMI is paid off).

2) Series I savings bonds: Are currently over 7% due to high rates of inflation. See the Treasury Direct website for more details.

3) Consider deferring or decreasing purchases of highly inflated non-essential items: For example, neighborhood restaurant prices and raw meat prices have skyrocketed (one place charges 20.00 for a medium 3 item pizza that used to be 13.00, viz). We eat out less; and wait until raw meat is on sale before purchasing. That has helped our budget and our waistline. As one reader pointed out, we can't control inflation, but can control our purchases.

4) Build Up Emergency Savings: While this may seem to contradict what I have said above, please remember that one must have emergency savings built up regardless of interest rates. For me, I believe that a minimum of six months of emergency savings is essential (with at least 12 months being ideal). So don't let near zero savings interest rates deter you from building up emergency savings.

Please feel free to share your suggested savings strategies for 2022:

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Choice
  |     |   603 posts since 2020
Get even…move in with the children! :). Not mentioned but the so-called opportunity in refinancing a purchase home loan while rates are at current levels may be tempting.  But, again, revisit whether or not that loan is recourse.  Would one want the loan expense when a tornado hits and insurance does a slow dance?  Or if laid off can one handle debt payments?  Or be able to “walk” in either situation?  Finally, what are emergency funds in this current rate environment? Everything!
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kcfield
  |     |   95 posts since 2012
Hi Choice: I like your post. In some cultures, it is expectable that the adult kids will remain home until they marry; but in return that they shall take care of their parents in their elderly years. You are correct that the highest priority is emergency savings; for it does not good to pay down loans if one cannot handle the emergencies that arise. In our case, we had to unexpectedly put in a new well, and are grateful we had the emergency savings to cover it.
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Choice
  |     |   603 posts since 2020
Noel Noel Noel
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kcfield
  |     |   95 posts since 2012
Choice: You are the king of free association and homonyms. Bravo.
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Choice
  |     |   603 posts since 2020
If the crown fits, try it I say to all!  Cinderella would be proud! 
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Kaight
  |     |   515 posts since 2011
This seems a good time to me to purchase short and borrow long. The latter provided you shop hard for the lowest possible interest rate. The former because I think prices which appear high now will only escalate going forward.

So buy right away anything you believe might be needed in the next year or eighteen months. And borrow money with a long payoff horizon to allow loan pay down with the future's devalued inflatodollars.

A final word of advice:

Do not take suggestions from me. I'm sitting here with a large portfolio of CDs having an average APY of roughly 3.5%. This includes more than one add-on CD with (what once seemed to be) a high interest rate. I thought I was doing great until the inflation hit. Now, not so much. So why would any smart person listen to my ideas as I lose purchasing power like crazy! Instead find and follow somebody who got it right.

True story:

You know I actually did accidentally do something right a few years ago. I bought some silver. Today it's worth about double what I paid. But the amount of the silver purchase was only a tiny percentage of my net worth. Had it been much larger I'd be in a position today to brag like hell. Oh, well. What was funny was my reaction as I cluelessly watched as the dollar value of that silver headed for the stratosphere. And I'm afraid to buy more today for fear of price collapse. So when I actually did get something right it was only thanks to dumb luck.  Groan.
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kcfield
  |     |   95 posts since 2012
Kaight: Thanks for your comments; and especially for your honesty and humility--and willingness to share some relevant financial stories with us.
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FirstNation
  |     |   32 posts since 2021
First off a little backround information.

I'm in my 70's, getting Social Security and can pay my basic necessities with that alone.

That being said this is going to be an interesting year for me.
I've got a boatload of CD's maturing this year.
And, I don't see the interest rates overtaking the inflation rate in 2022.
Hopefully, the current inflation is just a pandemic related aberration.
I don't mind losing 1% a year to inflation, but 3% is getting to be a little bit much.

Once the country starts getting flooded with cheap imports again the inflation situation should resolve itself.
For example, my old stereo that I bought for $500 back in the 60's finally crapped-out.
Since I just wanted a replacement stereo, I recently picked one up for $170 bucks.
Also, bought a new HP Chromebook for $149 bucks. My first computer monitor cost me more than that!
Electronics are just ridiculously cheap nowadays (pandemic or not, these are deflationary prices).

It really comes down to how you spend your money - and what your expections are.
I was raised lower-middle class.
My parents owned a home, we ate good and had clothes on our backs.
But the only time non-essentials were purchased was on birthdays and Christmas.
These folks were the children of the depression.
They got thru WWII alive and were happy about that simple fact.

Despite making a bundle while I was working I've never been able to get past that mentality.
Quite frankly, I'm just happy to still be here (despite Vietnam and the vagaries of old age).
Like grandma used to say, everyday that you still wake-up is a good one.
Now, I'm older than grandma when she said that to me.

Since I'm married, I'm co-oerced into spending money on frivolous things like vacations and restaurants.
These things are easily paid for by the paltry interest that we've been receiving over the last 10-15 years.
Hoever, the pandemic has saved me a fortune because the vacations haven't happened since 2019.
The restaurants are gouging us now. Mostly we go to the small mom and pop ethnic restaurants in our area.
Heck, I'm just glad our favorite restaurants are still open. They need to raise prices to cover the income they've lost.

All of us on this website tend to whine about our nest eggs shrinking before our very eyes.
But, the poor folks in the service industries have taken the brunt of the pandemic.
And, I'm not just talking about lost income.
For those that didn't lose their jobs, just dealing with the public on a daily basis is a health risk.

So, I'm just going to stay the course with CD's, iBonds and TIPS (if they ever sell above par again).
At my age, I prefer taking my lumps in small doses. The current stock market gives me the willies.
I'm old enough to remember when individual stocks were traded on the perceived value of a company.
Now, everything trades as one big meaningless block. Thank the FED for that. Nowhere to go but up!
One of these days, the FED's pulling a rabbit out their hat act is going to end-up producing one very dead rabbit!
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Choice
  |     |   603 posts since 2020
Play it again, Sam. Most of my IRA CDs have 3 plus years to go. A footnote is …the $ is being damaged b/c of several factors but the T tariffs were a good start to turn things around …cheap currency!  We are paying too little for imported items!  For example, years ago I told the engineering dean at my undergrad school… why are you graduating engineering students who will get a job and then have to train their foreign replacement AND still have debt of…?  Nothing.  They don’t get it!  Tuition, student debt, and graduate salaries are interrelated…schools are the common denominator…perhaps that is why I migrated to another profession.  When alums stop the donations, things may change…it is a vicious cycle!  Where does anyone think the Chinese got the $ for all their outreach “endeavors” which are not ceasing to the detriment of the world!  Enjoy the new year!
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kcfield
  |     |   95 posts since 2012
Choice: Sadly, I heard back from Sam. He said he can no longer play it again, as he had to sell his record player to make a payment on his student loan.
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GreenDream
  |     |   178 posts since 2019
Not only that, but when Rick’s Café Américain was shut down due to government mandated lockdowns it was unable to recover and reopen and now poor Sam is out of work.
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lostsoul
  |     |   6 posts since 2019
Ummm.. The Strategies are not looking good..lol... Im in the same spot. and it will be worse in April when my CD ends. Its like they are forcing people to gamble in the market that is about to explode. I dont know if its worth trying to get a decent investor and tying it up to their most conservatives investments. Then you minus their fee on top of taxes and what am I gonna be left with.. =-/
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TTL1
  |     |   3 posts since 2020
Sometimes I feel like I'm on this island all alone, it's nice to read posts that assure me there are others in my boat as well. I guess misery loves company lol Here's to better days ahead for savers like us. I refuse to get sucked into the market scam, some return is better than losing your principle. A bird in hand!
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kcfield
  |     |   95 posts since 2012
Hi TTL!: Thanks for your note; we are all indeed in this together. It is no easy thing to hang on to our principles and our principal during these challenging financial times.
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lostsoul
  |     |   6 posts since 2019
Its crazy out there for sure.. every time I hit yahoo I see tons of articles telling you to get these investments. These are safe , put your money here and then all around that is the good old stories of, I have 5 million in savings, 3 million in 401K, 2 million in bonds, can I afford to take my wife out to dinner articles ..lol
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Hooked
  |     |   127 posts since 2019
I only found out recently that my gas and electricity providers no longer charge inconvenience fees for credit card payments.

Applied for the U.S. Bank Cash+ Visa Signature card where utilities is one of the categories that offers 5% cash back. Included in my targeted offer is a $200 bonus for spending $500 within 3 months (I believe the current public offer is $200 bonus for a $1,000 spend within 120 days). Not a huge bonus nor big saving but these opportunities are part of my overall financial strategy.
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Choice
  |     |   603 posts since 2020
Long time US Bank customer(?) but I would not recommend it…first, read the DA comments on the bank. Will impose higher EWPs during CD term. Will issue SARs to IRS.  Improperly asks for credit reports when I’m it’s creditor!   Why did it pay $100s of millions in penalties to regulators while it proudly shows off a high ethics award for the same time period? Go figure! I use for transit of funds through its checking with all savings moved!
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Rickny
  |     |   259 posts since 2017
Hooked Last year I took advantage of some credit card and savings account bonuses. Made a couple of thousand on bonuses. The highest being $700 at Wells opening a checking account and $200 on a charge card. Hope you were able to take advantage of some of them.

Seems like the best way to squeeze out intrest last year.
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Hooked
  |     |   127 posts since 2019
Glad to hear, Rickny. I also took advantage of several credit card and bank bonuses last year, the highest of which was Chase Sapphire Preferred card’s 100,000 bonus points (plus $50 grocery credit and annual fee waived first year). Referred my spouse who also got approved for the card so the bonus was over $2k between the two of us. That was sweet.
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Rickny
  |     |   259 posts since 2017
I took advantage of 3 Chase bonuses . $200 each for a Charge card, savings account and an investment account. Got 5% cash back on groceries for 1 year. Card still has 3% on drug store and restaurant purchases.

The 100,000 for the Safaire card is nice. They have a pre approved offer for me with a 60,000 point bonus if I get a Saphire Prefered Card. Going to pass on this one.
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Rickny
  |     |   259 posts since 2017
Always on the lookout for investments to take advantage of during the low rate environment. During the pandemic I was going to payoff a large chunk of my mortgage. Read an article regarding NYC MTA muni bonds paying 4%. Bought the bonds on the secondary market with the funds. The mortgage is at 3.25% rate and also can take the intrest off my taxes. We are in a high tax bracket.

The bonds are not CDs and have some risk. The feds gave the MTA billions in funds during the pandemic. The tri state area could not the MTA go under. The MTA could also not survive without new bond issuances. They are callable in few years but 4% tax free is great. You can no longer purchase MTA bonds that will pay anywhere near 4%.

The bonds I purchased at par are now selling for around $110.


NYC NY state and the feds
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