fbpx

Canceled

Canceled - 3 Financial Mistakes to Stop ASAP

Originally aired 3/31/2021

Watch

 

While we don’t believe in cancel culture, we do believe there are some things you should cancel from your finances! What are they? We’ve got the straight talk you need to find out on this episode of the Get Ready For The Future Show

You’ll learn:
– 3 things that should be canceled from your finances ASAP
– How these mistakes can impact the economy and YOUR economy
– 1 important tool to help you along the way

Links:

Get Your Free 15 Minute Retirement Checkup

Listen

SHOW NOTES

It Ain’t Over ’til It’s Over(s)

  • Cancel Culture is the phenomenon of promoting the “canceling” of people, brands, and even shows and movies due to what some consider to be offensive or problematic remarks or ideologies.
    • There’s a difference between cancel culture and accountability.
  • We won’t get into too many specifics, but we will say as a whole we don’t believe in cancel culture.
  • We DO however believe there are some unhealthy things that should be canceled from your finances as you work toward financial independence.
    • We’re talking about overborrowing, overspending, and overconfidence.
    • Not only are these things bad for your personal finances, they also signify the end of a bull market.
      • Bad for the economy, bad for your economy.
  • Cancel Overborrowing
    • Businesses need to borrow to help expand, innovate, and invest in their future; consumers need to borrow to buy homes or pay for a college education.
    • But overborrowing can lead to a situation where consumers and businesses are unable to pay back debts, causing problems for the borrower, the lender, and by extension, the economy.
  • Indicators of Overborrowing
    • Credit card debt
      • Increasing levels of credit card debt (and other forms of unsecured, revolving loans) relative to income is an indicator that consumers may be overborrowing.
      • During fiscal year 2020, debt held by the public increased by $4,210 billion—the largest annual dollar increase in history.
      • March was Credit Awareness Month – it’s a great time to assess where you’re at
    • Consumer debt payments
      • Consumer debt payments refer to the total payments households make to pay for their debt obligations relative to income. This measure goes beyond revolving debt and speaks to the total debt payment burden consumers face each month.
        • Examples include mortgage or car payments.
        • A higher number indicates a higher percentage of income going to debt payments each month, which may be an indication of overborrowing.
    • Business Debt
      • The Fed reports the total debt for nonfinancial companies relative to pre-tax income for the previous four quarters, and this number can be used to compare business leverage over time.
        • A higher amount of borrowing on a lower income may be a sign of overborrowing on the part of corporations, similar to how a high amount of revolving debt relative to income may mean the same for consumers.
    • Commercial Loan Growth
      • A sharp spike in commercial loan growth can be an indicator that businesses are overborrowing.
      • Commercial loan growth is also a good complement to the other three borrowing indicators, given that it focuses specifically on the rate of growth, rather than absolute levels of debt.
  • Straight talk – here’s what this means for you:
    • Keep a check on your debt!
      • Be sure your debt isn’t growing at a rate your income can’t keep up with.
  • Normally we’d be talking to you a little bit about the Fastest Four right now, but…
    • The Fastest Four Minutes in Finance has a new home!
    • It’ll stay on our social media for the next few weeks, but we wanted to give you the opportunity to get it delivered straight to you. No searching for it.
    • Visit Fastest4.com, drop your email, and you’ll get an update every week.
    • Financially smarter, four minutes at a time.

Overspending

  • Cancel Overspending
    • Consumer spending and business investment are two key drivers of economic growth—but too much of either can be problematic.
      • Specifically, overspending on big-ticket items by consumers and unusually heavy business investment (i.e., capital spending) by corporations can signal trouble ahead, given that a spike in spending may not be sustained in future quarters as spending levels revert to longer-term averages.
  • Indicators of overspending:
    • Real Home Prices
      • Home prices, adjusted for inflation, have moved steadily higher over time, but have not shown large spikes outside of shorter-run supply-demand situations.
      • A substantial rise in the level of real home prices may be indicative of an overheated housing market, where buyers are willing to overpay.
      • This is happening right now!
    • Big Ticket Purchases
      • While a home is certainly considered a major purchase, it is not the only big-ticket item that consumers buy. “Durable goods” is an economic term for goods that are intended to be used for a long period of time.
        • Examples include automobiles, appliances, and consumer electronics.
      • Durable goods tend to be high-dollar items, and when an unusual amount of total economic output is spent on consumer durables, it could be a sign of overspending.
    • Business Spending
      • Business capital spending (also known as capex) is generally a positive indicator of future business prospects, but businesses may overspend.
        • For example, if a business builds a new factory to keep up with heavy demand, it may be a positive for the economy as it will need to be equipped with additional workers and new equipment.
        • But if demand never materializes, the investment may simply turn out to be a cost, not a revenue generator, and ultimately harm the company’s bottom line.
      • Evaluating the ratio of capex to after-tax income can help determine whether businesses are overspending.
    • Commodity Prices
      • While commodity prices typically fluctuate over time, large upward spikes in prices over a short period indicate that demand is outstripping supply.
      • As this happens, companies are forced to spend more on the basic inputs to their products, which will result in either slimmer profit margins, or price increases for the end consumer that may hurt demand.
        • Computer parts are a 1-year wait due to the impact of Covid on production and the higher consumer demand during the pandemic.
    • Straight talk – here’s what this means for you:
      • Many people have found comfort in spending money during the pandemic. Often those extra dollars spent were countered by less money spent on travel, dining out, etc.
      • However, as things are beginning to slowly open back up more fully, is there a place where you’re overspending? Check your budget to be sure you don’t blow it!
      • As for your retirement, do you know how much you need to cover your expenses? Overspending could wreck your retirement and cause you to run out of money before you run out of time.
  • Click here to get a free checkup to find out how likely you are to have a successful retirement.

Overconfidence

  • Cancel Overconfidence
    • Confidence is the driving force behind both spending and borrowing.
    • Consumers and businesses that are not confident about the future will be less likely to spend money or borrow more.
      • A balanced attitude toward future prospects leads to a healthy level of spending and borrowing. But unrealistic expectations lead to excesses, and the economy suffers when exuberance meets reality and businesses and consumers swing from excessive optimism to excessive pessimism.
  • Indicators of Overconfidence:
    • Consumer Confidence
      • This is the Conference Board’s Consumer Confidence Survey, which attempts to measure consumers’ current feelings about business and employment conditions, as well as their expectations for the next six months.
      • Consumer spending is responsible for approximately 70% of U.S. economic activity, making this an important metric to watch.
    • Valuations
      • Stock market valuations are important as a market-derived measure of confidence.
      • When market participants are confident, they are willing to pay more for a given dollar of earnings, leading to an increase in valuations.
        • But it is also important to measure stock valuations relative to other asset classes, which is why the Over Index measures valuations in relation to both corporate earnings (i.e., price-to-earnings ratio [PE]) and 10-year U.S. Treasury notes.
    • Wage Growth
      • Wage growth is a measure of business confidence, as businesses must trust that they will earn additional returns when increasing labor spending.
      • High wage levels can also help increase consumer confidence. If consumers believe they will earn more in the future, they may be more willing to spend or borrow now.
    • Business Leverage
      • While borrowing has its own subindex within the Over Index, leverage can also be an indicator of confidence. As risk rises, banks become less confident and less willing to lend.
      • When buyers cannot arrange as much (or any) financing for a purchase, sellers may have to lower prices, leading to declining asset values.
      • The Chicago Federal Reserve has developed its Nonfinancial Leverage Index (a subindex of the National Financial Conditions Index) to measure early signs of this type of financial instability.
  • Straight talk – here’s what this means for you:
    • Are you overconfident in an area of your financial life? What about retirement?
      • If you’re thinking about retiring within the next year, are you sure you can do that successfully?
    • There’s one way to find out:
      • You can get a FREE retirement checkup and learn how likely you are to have a successful retirement. Click here.

What’s the Plan?

  • These overs are indicators of possible future issues with the overall economy and your
    • How can you cancel overborrowing, overspending, and overconfidence?
  • A personalized plan, on paper, on purpose!
  • How does the GenWealth Ready to Retire Process address these overs?
    • A plan for accumulation
      • More aggressive to start
      • Less risky as you near retirement
    • A plan for distribution
      • More than just investments
        • Traditionally, financial advisors have been focused only on investment management.
          • When a client reaches retirement, they can be largely on their own figuring out how to take their managed investments and turn it into an income stream.
          • How do you decide what investments to sell, how much, and when?
        • Buckets
    • Collaboration to work toward your goals
      • The beauty of your plan is that it takes your needs and desires into account.
  • A balanced attitude toward future prospects leads to a healthy level of spending and borrowing.
    • Don’t let a distorted view of the future tank your retirement!
    • Be sure to assess where these “overs” may be impacting your life and your plan. If you aren’t sure, talk to your advisor!
      • That’s the beauty of a relationship with a trusted advisor – they can help you stick to your plan, work toward your goals, and point out any blind spots you may have.

FINAL THOUGHTS

    • Three things you should cancel from your finances:
      • Overborrowing
      • Overspending
      • Overconfidence
  •  
    • A personalized plan can help you navigate what these overs could mean for your retirement, investments, and money.
      • Accountability
      • Addressing risk
  •  
    • Are you on track for a successful retirement?
      • You can get a FREE checkup to find out! Click here.