New Tax "Cut" Not Really A Christmas Gift for America

The details of Donald Trump’s and Congressional Republicans’ tax cut have only just come out.  And, the details tell all.

First, I would not go out and celebrate, unless you:

  1. are in the real estate business
  2. run a large corporation
  3. have millions (many) in the bank and plan to die in the next 8 years
  4. are a wealthy investment manager
  5. are in the liquor business
  6. are a tax accountant

And, even then, those above have only an eight-year window before the new cuts expire for individuals (but not for corporations).  Eight years will go fast, and it could be much faster if the Democrats come into power in 2022 and reverse the tax cuts immediately. 

But, most of all, it is important to understand that this is not a middle class tax “cut” for needy Americans.  In fact, it is just the opposite.  The wealthiest, from extremely wealthy to very wealthy, are clearly those who win here.  And, the rest get a bone here and there, but nothing lasting and nothing that will seed the promise of continued and expansive economic growth.

So, be careful.  Do not listen to those who tell you the good times are here again.  Husband your resources and buy only what you need.  Invest with great caution with every market at exceptionally inflated levels, saving the rest in the highest yielding savings accounts and CD accounts.

And, remember that the best lesson gleaned from all this talk about a tax cut for all Americans is that Congress is out for itself and certainly not acting in the public’s interests.  In fact, all conservative principles about debt and taxes have been thrown out of the window to pass this bill.  

Fed Funds Rate is Raised to 1.25%

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The Federal Reserve, acting today in Janet Yellen’s final meeting as the Chairman, voted to raise the Fed Funds rate by 25 basis points.  The Fed funds target rate is now 1.25% to 1.50%.  The Fed is continuing to guide towards three 25 basis point rate hikes in 2018 which would lead to a Fed Funds rate of 2.00% by December of 2018.  Although there were two dissenters, and although Jerome Powell and an entirely new team of five Federal Reserve governors will be assuming roles in January, most economists agree that there will be three hikes in 2018.

We are slowly but surely seeing a normalization of interest rates in an effort to curb liquidity as the economy has moved over the last eight years from a dramatic recession to fast expansion.  Easy money is no longer required, and it is clear that the Fed, even under Jerome Powell, will raise rates further and in a measured way over the next two years, baring a shock to the economic system.

The pace of rate hikes, nonetheless, will continue to be especially slow for retirees, those who are averse to investments in the stock market, and others who otherwise depend on a risk-free rate of return in order to maintain a certain standard of living.

Savings rates are higher now that they were at the beginning of the year, and may move still higher as we move through 2018.  While the spread between average online savings rates and average online one-year CD rates has widened over the course of 2017 from about 33 basis points to about 45 basis points (see the third graph in our rate analysis), one-year CDs are not particularly compelling if you believe rates will continue to rise.  Rates are rising on longer term CDs as well, but if you expect continued rate moves in 2018, moving to higher yielding online savings accounts seems to be the best bet here.

When the Federal Reserve raises the Fed funds rate, as it did today, you also often see an immediate move in the prime lending rate offered by most major banks.  We expect that most banks will immediately raise their prime lending rate by 25 basis points which will have an equally immediate flow-through to credit card rates and auto loan rates.   If you have been considering locking into a home equity loan or a new fixed rate mortgage, you may want to consider doing so before the Fed’s moves again in a few months.

Our Predictions for 2018

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It is that time of year – the end of one and the beginning of another.   Every pundit is adding their economic predictions, so we’ll add ours.

We’ll begin with one caveat.  We had not seen the S&P going to 2600 in 2017.   We had believed that a President acting only in his own interests would cause a recession.  We were wrong.

Where we were correct was in our estimation that interest rates would rise, giving some relief to those seeking or needing to grow some of their nest egg in a risk-free manner.   That will continue in 2018 with the Fed under Jay Powell moving to raise rates at least three times between January and December.

As a result, we will see online savings rates cross over 2% before October.   1-year CD rates will offer around 2.50%.  With the leading money center banks continuing to offer next to nothing, online banks and their offerings will become more interesting than they have been at any time since 2007.  Local banks and credit unions will compete importantly thanks to aggressive roll-back of Obama era regulation after a lengthy and extensive debate on the matter between Elizabeth Warren and Paul Ryan.

Strong US growth will continue, mostly attributed to give-aways to some of corporate America through tax and other legislation.  Therefore, the yield curve will normalize with the 10-Year US Treasury getting close to 4%.  While 2018 will be a bad year for bonds, we’ll see 5-year CD offerings at 3.50%, with the occasional local promotional rate even higher.  This will be an opportunity for those with cash to put money safely away for a few years.

The rise in interest rates will cause those who have put off remortgaging their homes  or taking out a home equity loan to regret not having locked in at the beginning of the year.   Housing prices – especially in New York, California, New Jersey, Connecticut and Illinois – will fall quite dramatically due to changes in state and local taxation deductions.   Those purchasing at prices more than 20% below 2017 prices will be happy to pay slightly higher mortgages rates on their new properties.

The stock market will reach new highs in the Spring, immediately after Congress invokes the 25th Amendment – perhaps twice - and makes Paul Ryan the President.    Amazon and Apple will become the first US companies to have valuations over $1 trillion.  Chip stocks will also explode the upside as it becomes apparent that AI presents a greater tech opportunity than anything we have seen in technology in over 25 years.

The stock market then begins to fall.  Some people will attribute it to an implosion in Bitcoin, but new regulations concerning social media cause advertisers finally to realize how much of the activity is bots creating nonsense.  Health care holds the market together, performing well after the mid-term elections deliver a Congress that begins to pass legislation recognizing the importance of continued innovation in this sector.    Nevertheless, the S&P ends the year at 2300.

Oil prices will begin to climb, even briefly hitting $90 a barrel as a result of continued instability in the Korean Peninsula and Saudi Arabia.  The dollar strengthens due to higher interest rates.  Gold also strengthens after bitcoin’s collapse.  As a result, emerging markets and global markets sell off even more than the US markets.  We see dramatic falls even in those markets that are oil and gas-based after Russia experiences deep political instability around the World Cup. 

And, here is the most important prediction.  When we reach the end of 2018, Americans will look back at the beginning of 2018 and be pleased that our democracy is still intact and that our country remains based on a law-based state.   The assault on America’s foundations will seem like a distant memory.

So, there are our predictions.  Like in years past, a lot of this is probably going to be wrong so it should all be taken with a grain of salt.  Under any circumstance, you shouldn’t trade on it.

What Jerome Powell’s Confirmation Means for You

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Like any American who has one iota of intelligence or historical perspective, I am outraged by our country’s loss of civility and direction at the hands of the Republican (now Trumpian) Party.  The tax bill, in particular, is an assault on all Americans outside the billionaire class.  The country feels like France circa 1788 and our least desirable elements are turning us into a banana republic.

However, Jerome Powell’s appointment is not an assault on Americans.  Rather, it is a benefit to consumers.  Powell is clearly intent on pairing back post-2008 legislation that was well intentioned but which has had adverse consequences.  Rules applied to the banking system through Dodd Frank and other legislation were designed to protect the financial system from “too big to fail”, but have ironically created a situation where the 8,000 commercial banks that aren’t Chase, Citibank, Wells Fargo and Bank of America have been unable to be competitive for over a decade.  Instead, they have been busy paying Accenture, Deloitte and Price Waterhouse fortunes to ensure compliance with obscure rules.

As these rules are paired back, Americans will find increasingly competitive savings rates and CD rates from banks geographically near them.  Credit unions also will be able to compete.

And, these same institutions will be able to offer more competitive rates on their mortgage, home equity and auto loan products.

In the end game, Americans will win from increasing competition, at least in the short term.

There is competition for your money.  Take advantage of it by exploring a map of banks near you.

10 Money Saving Tips for Seniors

Life as a senior brings all sorts of new challenges – good and bad.  It can be a wonderful time, if you stay positive and healthy, enjoying new and old friends and doing the things you’ve always wanted to do.  The key challenges one faces at this age are staying healthy and not blowing retirement resources carefully accumulated for this period.  As studies show that Americans and living longer and more fruitful lives in retirement, you want to be sure that you have the maximum resources to take advantage of it.

Below, are my top ten tips for staying smart and financially comfortable as you age.

1. Move to savings and CDs

The stock market has been appreciating for a long time.  We know for a fact – based on our experiences from 2000 to 2002 and through in 2008 and 2009 – that markets do not only go up.  They also go down.   If you participated in the market and made money, count yourself lucky.  If you didn’t, the last thing you should do is get in heavily now.  As an absolute rule, retirement is not a time to play the market; we seniors do not have the time to recover from the serious falls in the market that inevitably come and come frequently.  The smart and only thing you should do is keep most of your assets out of the market and to invest in savings and CDs, up to the federally insured limit of $250,000 per bank.  Succumbing to market temptation is the kiss of death for seniors.

2. Downsize.

As you organize your financial life going forward, you should consider downsizing your home and property.  There is a weight taken off when you no longer pay a mortgage, large property tax bills, and outsized utility bills.  And, I promise, you will feel light footed knowing you are no longer, nor will your heirs be, shackled with the heavy burdens of large homes and related property.  And, you will also pocket the difference and that will almost certainly will put an extra step in your stride.

3. Consider moving to a lower tax state.

While you are getting rid of your old homestead, be extra smart and relocated to a warm climate and a tax-free state. There are some really good ones now where climate and costs will both be welcomed changes in your years ahead.

4. Question your purchases.

It is always easy to buy new things and to give in to the temptation of the moment.  But, as we get older, we also get wiser.  Giving in to temptations of the moment are things we do less and less as we age.  We have been there too many times – buying something expensive that catches the eye only to get it home and wonder why we bought it in the first place.  So, my recommendation is to get even more serious about momentary urges to buy and to establish a program whereby you wait at least a couple of days before making any purchase, especially large purchases.  Use those days to ask yourself several times whether that particular purchase makes sense. 

5. Budget.

I personally hate the idea and have never been good at it, but friends tell me that making and sticking to a monthly budget saves a whole lot of money.  What they do, and I seem unable to do, is set a hard line on how much they are both able and willing to spend for each month (obviously based on their projections of expected income and desired savings).  They then literally stop spending money when they reach their limits – actually slowing down and holding expenditures to a necessary minimum as they get to the end of the month.  While, as I said, I cannot do it, the logic makes all the sense in the world and holding to a budget you have set for yourself will undoubtedly serve you well.

6.  Be Careful with your gifting.

One thing we are always tempted to do, and it’s a good thing in moderation, is to offer financial assistance to our children and grandchildren. It’s great for them, sometimes even necessary for them, but it is also a slippery slope.  Many friends of mine have found themselves dangerously short of resources in their later years because they were too generous to their children.  Often those very same children are so mired in their own expenses that they cannot return the generosity and help their parents later down the road.  The obvious lesson here is to gift what you can while living, especially if your kids really need it, but to be always tough with and for yourself by making certain that you don’t leave yourself in jeopardy in your last years.

7.  Travel, but do it wisely.

Travel is often a defining set of experiences in retirement that contribute to making life at this stage so rich.  It can be done near home or as far around the globe as you desire.  But doing it is great for your mind and body and allows you to grow and learn while feasting on rich and new experiences.  All that said, however, the travel industry is just waiting for you, and usually not in a good sense.  Cruise and travel packages abound designed to capture your imagination and to separate you from your money.  It makes all the sense in the world to take advantage of the time you have and travel, but it is equally true that you can travel much more frugally by making your own plans and reservations and staying clear of the slick and far too expensive offerings of those who prey on older folks.

8.  Hang up on con artists.

Among the best pieces of advice I can offer those of us who are retired is not to answer your phone.  Nine out of ten times, there is someone on the other end who has bought a list of retired people from a third party and who is trying to sell you one or another useless, expensive and, most often, fake product or service.  You know better; just hang up.

9.   Be creative.

Few people believe that older, retired people have much of anything to offer the larger population.  The truth couldn’t be further from reality.  Older people have been around and if they have done stuff of interest, there is no reason they couldn’t continue as consultants or new business owners.  My point here is that many older people have well honed skills and, even more important, insights and creativity that could allow them to continue, albeit not necessarily 9 to 5, to engage in new activities, even ones for handsome remuneration.  In other words, don’t count yourself out because others think you are old.  Instead, prove that you can be as good as if not better than others and that you can continue to make money from your own efforts and imagination.

10. Exercise often.

And, finally, the best thing you can do for yourself, and at very low cost, is the exercise often and regularly.  Keeping in good shape and good health will save you more money than anything else, especially as it will free you of ever more expensive medical and hospital bills.  And, equally, staying healthy keeps mind and body in shape to enjoy and take advantage of the rich array of experiences that only those of us in retirement can enjoy.

20 Simple Money Moves to Get on the Right Path to Saving for the Future

Anyone planning for their future – including you – is well served to try to set aside some of the resources that you earn today for tomorrow.  At BestCashCow, we don’t believe that there is anything to be gained by living an unnecessarily frugal lifestyle like many other websites advocate.  Life is short, and living a frugal lifestyle is silly!  But, we do believe that there are plenty of easy ways to save for the future, without going overboard.  Here are 20 of our favorites:

1. Put your savings in a high interest savings account.

The trillions of dollars that Americans lose every year by keeping their money in a low interest savings account is just startling.  The most amazing thing is that it can easily be avoided if everyone would just check the best online savings rates here.  If you have never opened an online savings account, you should read this article to get started.  If you are still not comfortable with online banking, you can still make more by carefully choosing between and among local banks or credit unions. This is the easiest and simplest thing you can do to put more money in your pocket if you have any savings. Bookmark these pages and be sure to check back often as rates are going up!

2. Set a plan to pay off all of your high interest debt.

You cannot even begin to save if you are one of the millions of Americans who carries high interest debt.  Make a list of your high interest debts and then develop a strategy for paying them off.   If you don’t have the resources available immediately to lower your debt right away, consider consolidating it in a home equity line of credit or a home equity loan.

3. Challenge every recurring expense.

Challenge every recurring expense you have. Consider whether you really need all of your cable channels and other services you may be paying for monthly.  Many people have been paying for a service so long that it becomes second nature, but that doesn’t mean that you shouldn’t cut it out.  Challenge yourself by writing down every recurring expense you have, then look for expenses you can fully cut out, and then find ways to save money on the remaining expenses.

Could you spend less on your mortgage?  Check remortgage rates where you live.

4. Compare insurance rates.

Insurance rates – for health insurance, home and auto insurance and life insurance - are always changing.  New competitors enter markets and others change their offerings (becoming more competitive or less competitive).   Review all of your policies annually and make sure that they are the best for you.  The cheapest isn’t always the best, but you may find the same or better coverage for less money when you shop around.

5. Make a practice of delaying large purchases.

When you’re considering making a large purchase, refrain from buying it right away.  Rather, spend some time researching the product, and commit not to buying it until some time – such as one month  - has passed.    When you are less spontaneous, you end up only with the things that you really need and really want. 

6. Wait until the end of the month or quarter to make your largest purchases.

All sales reps have quotas to meet per month or quarter, so if you wait until the end of the month to make a big purchase, you can potentially save a lot. Car salespeople especially work with quarterly quotas and buyers can score the best deals if they can wait until the end of the quarter.

7. Use electronic coupons where possible for things you need.

In general, physical coupons aren’t worth the time you spend accumulating and managing them.  However, you should be on the lookout for electronic coupons that save you a lot of money on things you need anyway.

8. Take advantage of loyalty programs offered by the travel industry.

My loyalty programs for Delta, United and American Airlines over the years have subsidized all of my personal travel for decades (including many trips to Hawaii, Europe and Asia).  My loyalty to Starwood and Hyatt has been equally rewarded.  Take advantage of these programs.  You can boost your balance in these programs with the right credit cards.

See how we value airline miles and hotel points.  

9. Give up expensive habits and addictions.

Your habits  - good and bad – always work against you when you are trying to save money.   Alcohol and smoking are obviously bad habits that are very costly (the cost of these habits should not be your main reason to quit).   Vitamins, supplements and other so-called nutritional aides may seem like good habits, but they are, in fact, expensive habits designed to separate you from your money.  Try eating well instead.   

10. Reduce costs of your other habits (Brew your own coffee)

My most expensive habit is coffee and I can’t kick it, so I brew my own. Instead of spending $4 per cup at Starbucks or a real coffee shop, brewing my own coffee keeps the expense below 15 cents a cup. 

11. Drink more tap water.

Water is better for your health and saves you a lot of money.  Tap water is not only basically free, but it helps save the environment. Invest in a water filter for your home. The savings are especially great when you drink tap water instead of soda or beer when dining out (at least this works in New York City where the tap water is safe to drink even when it hasn’t been filtered). 

12.  Eat at home.

Eating at home is easier and healthier than eating out. It is also much cheaper.  I routinely throw together a quick salad with all sorts of great and exotic fruits and vegetables from my local Whole Foods that I won’t find on any restaurant menu.   If salads aren’t for you, try stir-frying or make homemade pizza with a ready-made bobboli crust.

13. Get paid to spend.

Maximize your credit card rewards by using the right card for your purchase.  It is BestCashCow’s view that the most value can be extracted from travel rewards credit cards.  Find the best travel rewards sign-up bonuses here and the best cards for your spend here.  Those who don’t travel may prefer cash-back cards.   Whichever you prefer, always be on the lookout for cards that might have multiples of the regular reward rate in certain categories.

14. Build your credit.

Whether you have good credit, fair credit, or bad credit, work on building it up.  Your credit determines your eligibility for mortgages and home equity loans.   It determines whether you can get the best credit cards.  Potential employers will also routinely run credit checks on job applicants.

15. Save energy.

This one sounds so simple, yet is so often ignored by so many.  Turn off the lights and the air conditioner when you aren’t around!   Stop wasting energy.  Preserve your resources as well as the earth’s.  Maybe even adjust downward the brightness on your TV and computer screen.

16. Buy in bulk and buy generic when possible.

Costco can save you a ton.  But, also think about name brand household products that carry the same ingredients as generic brands.  Generics can often taste better or be healthier too.  You can save thousands of dollars by simply buying the generic store brand instead of the well-known brand.  Kirkland is Costco’s own generic brand.

17. Cancel catalogs and unsubscribe from email announcements from companies trying to sell you stuff.

Announcements of sales or cool new products make it very tempting to buy something you don’t need. Instead, stop the catalogs and emails from ever getting to you in the first place, and you will save time, money and the environment.

18.  Exercise.

This is, in many ways, the most important piece of advice we can possibly give.  Staying healthy is the best way to avoid costly medical bills later.  Biking is also often the cheapest and fastest way to get around.  Ask a Dutch person.

19.  Clean Out Your Closets.

By getting rid of all the excess stuff in your home, you will make your life simpler and more peaceful.  Let others benefit from stuff you don’t need any longer or that your kids have outgrown by giving it away. 

20.  Find happiness in life, not spending.

Psychologists have proven that people buy stuff because they subconsciously believe that it will bring them happiness.  While you may really need an Iphone X, do you really need the iWatch and the latest Audi with Apple Carplay? This stuff will only make you happy for a day or two and then you will have buyer’s remorse.  Try to find joy in nature, in exercise and in each other, instead of trying to get a kick from unnecessary purchases.

Now you’ve got 20 ways to save money.  We hope you’ve read something here that will help with your finances and help you live a happier life.