inflation http://www.wisebread.com/taxonomy/term/1745/all en-US 7 Cool Things Bonds Tell You About the Economy http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-cool-things-bonds-tell-you-about-the-economy" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/kid_investing_happy_000065886749.jpg" alt="Learning cool things bonds teach us about the economy" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Bonds are often cast as the boring stepchild of investments, but they can actually offer some great insights into the machinations of our economy. Their yields and interest rates that are affected by overall economic conditions, so you can learn a lot by owning them. And they may even predict how certain aspects of the economy will evolve. (See also:&nbsp;<a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds?ref=seealso" target="_blank">5 Crucial Things You Should Know About Bonds</a>)</p> <p>Here are seven things that bonds can tell us.</p> <h2>1. They Can Tell You If the Economy Is Healthy (or Not)</h2> <p>Some bonds perform well when the overall economy is in good shape. Others perform better when times are tough. High-yield bonds, emerging market bonds, and corporate bonds with low ratings tend to perform best when the economy is strong. But U.S. Treasuries &mdash; which are seen as less risky &mdash; don't perform as well when the economy is doing well.</p> <p>So, if you want to get a general sense of how the national or world economy is doing, pay attention to the types of bonds people are investing in. Generally speaking, a rush to riskier bonds means things are going well. But when times are tough, Treasuries are often the place investors flock to. Here's a <a href="http://bonds.about.com/od/bonds101/a/The-Economy-And-Bonds.htm">helpful chart</a> that shows how different bonds perform in various economic conditions.</p> <h2>2. They Can Predict a Recession</h2> <p>In the 1980s, economists began to realize that they could predict economic activity by looking at something called the bond &quot;yield curve.&quot; In simple terms, this is the difference in the interest rates between three-month and 10-year Treasury notes. If the interest rates on 10-year notes are higher than the shorter-term rates, then the <a href="https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx">chances of a recession</a> in the next 18 months are not very high, according to information published by the Federal Reserve. When the yield curve is inverted &mdash; meaning long-term interest rates are lower &mdash; then look out. This was the case in 2006, and America was in a recession within two years.</p> <h2>3. They Can Predict If You'll Pay More for Stuff</h2> <p>One of the downsides to investing in Treasury bonds is that they can lose value due to inflation. That's why the government introduced something called Treasury Inflation Protected Securities (TIPS). These are like bonds, in that they have a fixed-rate yield and regular interest payments, but the principal is adjusted according to the Consumer Price Index.</p> <p>Generally speaking, you can determine the possible rate of future inflation by examining the spread between the yield in a bond and a TIPS with a similar maturity date. So for instance, if a three-year Treasury note has a yield of 4% and a three-year TIPS note has a yield of 2%, then the expected rate of inflation over the next two years is 2%. This is not an exact science, however, as there are a multitude of factors that can drive inflation.</p> <h2>4. They Can Tell You If Stock Investors Are Skittish</h2> <p>When investors flock to bonds, it's often because they are feeling less confident about riskier investments, such as stocks. Bonds are popular investments among those close to retirement, but when all investors are drawn to bonds, it could be a sign that the stock market has taken a dive or is underperforming. Conversely, less interest in bonds could be a sign that the stock market is doing well.</p> <h2>5. They Can Tell You If Companies Are Investing in Themselves</h2> <p>Corporate bonds can give you a glimpse of what companies are doing with their money, especially whether they are looking to expand. Even large companies with a lot of cash will issue bonds in order to make big capital improvements, fund an acquisition, or invest in research and development. (Even Apple, which reported $55 billion in cash in the last quarter, also reported $10 billion in bond debt.)</p> <p>Be careful, however, as many companies go into debt simply to stay afloat. Pay attention to the ratings on corporate bonds to get a better understanding of how companies may be using debt. A company with a strong credit rating is more likely to be raising funds for investment or expansion rather than to simply fund operations.</p> <h2>6. They Can Impact What You Might Pay for Your House</h2> <p>The government does not set mortgage rates. Banks do that. But banks will often keep mortgage rates in line with those of long-term Treasury notes. That's because Treasuries and mortgages are offered for similar terms, usually in the 10- to 30-year time frame. So when Treasury notes rise, mortgage rates usually rise, as well.</p> <h2>7. They Can Let You Know if Your City Is in Trouble</h2> <p>Municipal bonds can offer insight into the economies of cities and states. Municipalities will sell bonds in order to raise money for capital projects. The size and quality of these bonds are clues into whether a city is investing properly or has too much debt. Bonds with high interest rates may come from cities with less-than-stellar credit &mdash; a sign of a city that has been struggling. (For an example, take a look at Atlantic City, which is struggling to make debt payments after years of declining tax revenue.) Moreover, bonds will tell you whether a municipality is selling bonds just to fund normal operations, or for investments in things like infrastructure that will benefit the city's financial health over the long term.</p> <p><em>Still bored by bonds?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-10"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/laddering-for-higher-more-stable-returns">Laddering for higher, more stable returns</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-stocks-and-bonds-that-will-profit-from-the-fed-rate-hike">10 Stocks and Bonds That Will Profit From the Fed Rate Hike</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-latin-american-markets-to-watch">5 Latin American Markets to Watch</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">While Waiting for Rates: I-Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds Economy inflation interest rates predictions recessions Thu, 12 May 2016 09:00:05 +0000 Tim Lemke 1705414 at http://www.wisebread.com 8 Surprising Ways Cheap Oil Impacts Your Wallet http://www.wisebread.com/8-surprising-ways-cheap-oil-impacts-your-wallet <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-surprising-ways-cheap-oil-impacts-your-wallet" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_getting_gas_000019298644.jpg" alt="Learning ways cheap oil impacts your wallet" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When it comes to oil prices, there just doesn't seem to be a bottom these days. Crude oil is selling for about $30 a barrel, and that's having a major impact on both the global economy and Americans' pocketbooks.</p> <p>How are low oil prices affecting your finances?</p> <h2>1. You're Saving on Fuel and Energy Costs</h2> <p>It's simple: Low oil prices mean you pay less to fill up your car, or to heat and cool your home. IHS Global Insight predicted that Americans would save more than $100 billion, or $750 per household, due to low oil prices in 2015 &mdash; and savings are expected to continue this year. (See also:&nbsp;<a href="http://www.wisebread.com/this-is-how-the-high-cost-of-cheap-gas-hurts-you?ref=seealso">This Is How the High Cost of Cheap Gas Hurts You</a>)</p> <h2>2. Oil Stocks Have Been Hammered</h2> <p>In case you didn't notice, any stock or mutual fund associated with the oil industry has been getting creamed for quite a while. I bought shares of the iShares Oil and Gas ETF last year, believing they were bottoming out and would go up in value in short order. I was wrong. Shares are down 25% in the last 12 months, and 43% in the last two years. If you have a 401K or IRA with energy stocks, you may have seen your portfolio drop quite a bit over the last year or so.</p> <h2>3. You're Saving Everywhere Else, Too</h2> <p>In America, we're currently in a period of low inflation, and the low price of oil has a lot to do with that. Low oil prices mean it's costing less to ship goods, or for plastics manufacturers to make their products. In fact, low oil prices have a ripple effect on the price of almost everything. As evidence, the consumer price index declined 0.1% in December, after rising just 0.2% in November. The CPI is up just 0.7% in the last year. (On average, it's gone up about 2% annually over the last decade.)</p> <h2>4. Recycling Isn't a Cash Cow Anymore</h2> <p>Petroleum is the key ingredient in plastics, and with oil so cheap, there's less demand for recycled plastics. After all, why buy used when new is cheaper? After decades of effort and investment, localities across the country <a href="http://www.nytimes.com/2016/02/13/business/energy-environment/skid-in-oil-prices-pulls-the-recycling-industry-down-with-it.html?_r=0">have seen recycling rates rise</a>, along with revenue to local coffers. For example, in 2015 the city of Washington, DC paid its waste management contractor $1.37M to take its plastics and other recyclable materials off its hands, but as recently as 2011, the city earned $550K for its reusable trash. &quot;A real fear now,&quot; Michael Taylor of the Society of the Plastics Industry told the New York Times, &quot;is that recycling rates might go down. That would be a horrible situation.&quot;</p> <h2>5. Fuel Taxes Could Go Up</h2> <p>Many lawmakers and even some business groups have been urging for an increase in federal and state gas taxes as a way of funding infrastructure improvements. And they say the time may be right for an increase, because a gallon of gasoline is selling for its lowest price in years. (Gas taxes are a harder sell when it's already expensive to fuel up.) President Obama recently proposed a $10 per barrel tax on oil in his latest budget, and Alabama, Alaska, and Indiana are among the states discussing a gas tax hike.</p> <h2>6. You're Traveling and Eating Out More</h2> <p>If you're paying less for gas, there's more money in your pocket. That means it's less of a financial challenge to take the family to a restaurant or on a vacation. The Wall Street Journal reported that spending on food and accommodations last summer was up 8% over 2014. Many tourists sites, including National Parks, saw good upticks in attendance last year and expect solid performances in 2016.</p> <h2>7. Life Is Harder if You Live in West Texas or North Dakota</h2> <p>For several years, places like North Dakota or Midland, TX were enjoying super-low unemployment and a migration of people looking to take advantage of the oil boom. But things aren't nearly as active there now. The state economy grew by only 1% last year, compared to 6% the year prior, according to Kiplinger's. North Dakota's governor recently presented a plan of budget cuts brought on by lower oil revenues. This has also impacted the budgets of other oil-dependent states, including Alaska and Louisiana.</p> <h2>8. The Ruble and Other Currencies Are Down</h2> <p>If you're Russian, or invest in currencies, you may have noticed that the value of a ruble against the euro and dollar has been sliding. Journalists reported in January that Russia was looking to cut 10% off its federal budget, which was originally made with $50 per barrel oil prices in mind.</p> <p>Russia is one of many countries that relies heavily on oil exports to drive their economy, so low prices can have a severe impact on economic growth. Low oil prices have also impacted the Canadian dollar and Mexican peso (both down about 20% in the last two years), and the Norwegian krone (down about 25%.) The one plus side for Americans is that the U.S. dollar has remained strong, and it's now relatively cheap to travel to some of these countries or consume their exports.</p> <p><em>Have you noticed any surprising effects of cheap oil? Lets us know in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-surprising-ways-cheap-oil-impacts-your-wallet">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-financial-moves-you-will-always-regret">9 Financial Moves You Will Always Regret</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-easy-ways-to-get-your-finances-fit-for-summer">10 Easy Ways to Get Your Finances Fit For Summer</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/where-to-turn-for-help-when-you-dont-have-an-emergency-fund">Where to Turn for Help When You Don&#039;t Have an Emergency Fund</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/12-financial-moves-to-make-when-a-loved-one-dies">12 Financial Moves to Make When a Loved One Dies</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/12-money-adjustments-you-should-make-mid-year">12 Money Adjustments You Should Make Mid-Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance currencies driving energy gas prices inflation oil prices taxes Mon, 22 Feb 2016 11:30:05 +0000 Tim Lemke 1658152 at http://www.wisebread.com 5 Latin American Markets to Watch http://www.wisebread.com/5-latin-american-markets-to-watch <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-latin-american-markets-to-watch" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/south_america_globe_000006090971_0.jpg" alt="Learning which Latin American markets to watch" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The <a href="http://www.imf.org/external/pubs/ft/weo/2015/update/02/">International Monetary Fund (IMF)</a> projects that for 2015, the U.S. economy will grow a modest 2.5%. And some analysts predict single digit returns for the S&amp;P 500 for 2016.</p> <p>Emerging economies in Latin America have stronger growth prospects. In general, emerging markets are projected to grow two to three times faster than the U.S. over the next several years. According to the <a href="http://blog-imfdirect.imf.org/2015/11/09/bad-debt-in-emerging-markets-still-early-days/">IMF</a>, from 2009 to 2014 the largest emerging economies grew a total of 48%. As Latin America continues to adapt free-market policies, here are five emerging Latin American <a href="http://www.wisebread.com/10-best-stock-markets-in-the-world-in-2015">markets to watch</a>.</p> <h2>1. Peru</h2> <p>The Peruvian economy is one of the fastest growing economies in Latin America. It is the world's third largest copper producer, and receives a significant portion of its revenue from the mining sector and exportation of metals such as gold, lead, iron, and tin. It also gets about 10% of its revenue from petroleum. While many commodities have taken a hit recently, Peru's current GDP growth of 5.1% is attributed to an expected increase in mining production and infrastructure projects.</p> <p><strong>Projected growth</strong>: 5.0% (2016 est.)</p> <p><strong>GDP Growth (2013 to 2017)</strong>: 27.4%</p> <p><strong>Inflation Rate:</strong> 3.5%</p> <p><strong>Government Debt as % of GDP</strong>: 15.9% (2014 est.)</p> <h2>2. Chile</h2> <p>Chile's moderate growth of 3.3% is attributable to an increase in demand for its exports, thanks to the weakening of the Chilean Peso. But Chile is also an unusually stable economy by Latin American standards, and deserves to be on this list, given the relatively lower risk investors may face. Planned infrastructure deals and changes in business tax policies &mdash; expected to attract outside business investors &mdash; are also good news for the Chilean economy.</p> <p><strong>Projected growth</strong>: 3.3% (2016 est.)</p> <p><strong>GDP Growth (2013 to 2017)</strong>: 24.2%</p> <p><strong>Inflation Rate</strong>: 4.6%</p> <p><strong>Government Debt as % of GDP</strong>: 16.5% (2014 est.)</p> <h2>3. Colombia</h2> <p>Colombia is Latin America's fastest growing economy, thanks in part to a surge in foreign direct investment, and an improving security situation. It's also less dependent on oil than most oil producing countries &mdash; representing only 16% of GDP. Though the Colombian Peso has weakened recently (to approximately 2,900 Pesos per USD), several industries stand to gain from the weaker currency, such as manufacturing, financial services, telecommunications, tourism and transportation.</p> <p><strong>Projected growth</strong>: 3.7% (2016 est.)</p> <p><strong>GDP growth (2013 to 2017)</strong>: 21.9%</p> <p><strong>Inflation rate</strong>: 5.25%</p> <p><strong>Government debt as % of GDP</strong>: 41.9% (2014 est.)</p> <h2>4. Mexico</h2> <p>Mexico has the second largest and strongest economy in Latin America. Its main exports are petroleum, automobiles, and a variety of manufactured parts and electronic equipment. Its expected growth is due to strong U.S. demand for its exports (the U.S. imports 70% of all Mexican exports), and planned spending on infrastructure projects like Mexico City's new international airport.</p> <p><strong>Projected growth</strong>: 3.3% (2016 est.)</p> <p><strong>GDP Growth (2013 to 2017)</strong>: 17.5%</p> <p><strong>Inflation Rate</strong>: 2.88%</p> <p><strong>Government Debt as % of GDP</strong>: 41% (2014 est.)</p> <h2>5. Brazil</h2> <p>Brazil is the largest economy in Latin America, with a population of just over 200 million people. Though corruption scandals have plagued recent governments, foreign direct investment to the South American nation remains strong, and the country's growth prospects reasonable.</p> <p><strong>Projected growth</strong>: 1.0% (2016 est.)</p> <p><strong>GDP Growth (2013 to 2017)</strong>: 22.3%</p> <p><strong>Inflation Rate:</strong> 14.25%</p> <p><strong>Government Debt as % of GDP</strong>: 59.3% (2014 est.)</p> <p><em>Have you added any of these markets to your portfolio?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/5-latin-american-markets-to-watch">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">7 Cool Things Bonds Tell You About the Economy</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-reasons-why-the-us-economy-is-kicking-the-worlds-butt">9 Reasons Why the U.S. Economy Is Kicking the World&#039;s Butt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-best-stock-markets-in-the-world-in-2015">10 Best Stock Markets in the World in 2015</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tips-and-i-bonds">TIPS and I-Bonds</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation">How to Understand and Protect Yourself From Inflation</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Economy foreign markets GDP inflation latin america market growth Fri, 04 Dec 2015 14:00:03 +0000 Qiana Chavaia 1618127 at http://www.wisebread.com How Much Can You Afford to Spend in Retirement? http://www.wisebread.com/how-much-can-you-afford-to-spend-in-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-can-you-afford-to-spend-in-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement_fund_money_000049360888.jpg" alt="Figuring out how much you spend in retirement each year" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You've finally reached retirement. Your days of fighting rush hour traffic to get to the office are over. But now you face a new challenge: How much of your retirement savings should you spend each year? It's a big question: Spend too much and you might find yourself out of money 10, 15, or 20 years into retirement.</p> <p>&quot;There are different ways to approach retirement spending,&quot; says Celandra Deane-Bess, chair of the national practice group on retirement for Philadelphia, Pennsylvania-based PNC Financial Services Group. &quot;As you get closer to retirement age, we recommend that you take a more detailed look at your income and your living situation. There are so many factors that can alter how much you can afford to spend each year in retirement.&quot;</p> <p>Planning your retirement spending isn't something you can do with a simple formula, though the following formulas can give you a starting point.</p> <h2>Inflation and the 60%&ndash;90% Rule</h2> <p>Deane-Bess says that many retirees plan for their annual cost of living, because of inflation, to rise 2% to 3% each year. That's a good starting point. But she also pointed to research showing that some costs of living are growing faster than the rate of inflation. This includes one of the major ones that impact retirees: health care costs.</p> <p>Retirees will need to adjust that annual cost-of-living increase upward to account for the rise in healthcare costs, including the rising costs of prescription medications.</p> <p>One rule of thumb that retirees have long followed is that they should spend from 60% to 90% of their after-tax annual income each year in retirement. So, if you were earning $50,000 each year before you retired and you had an effective tax rate of 15%, you were living on $42,500 after taxes each year.</p> <p>If you decide that you need to spend 85% of your most recent after-tax yearly income in retirement, you'd need to have $36,125 available to you each year after retirement. You can generate that yearly income from your savings, pensions, Social Security, and any other regular streams of income you might have.</p> <p>Again, though, this is only a general rule of thumb. You can change how much of your pre-retirement income you'll actually need during your retirement years, Deane-Bess said. If you move to a less expensive home or community, for example, you might need to spend 60% of your pre-retirement income each year. If you live in a higher-cost area, you might need to spend the full 90% each year.</p> <h2>The 4% Rule</h2> <p>Another rule of thumb? The 4% rule. This rule says that you should withdraw 4% of <a href="http://www.wisebread.com/8-steps-to-starting-a-retirement-plan-in-your-30s">your retirement-savings</a> portfolio in the first year of retirement for your living expenses. You should then withdraw that same dollar amount, plus enough extra income to account for inflation, every other year of retirement.</p> <p>It's important to note, though, that this formula rests on the assumption that your retirement will last 30 years. If you're particularly healthy, and you might be retired for more than three decades, you might have to withdraw fewer dollars each year to make your money last.</p> <h2>Expect Some Expenses to Rise</h2> <p>&quot;People often forget that there are actually a few expenses in retirement that go up,&quot; Deane-Bess says. &quot;Everyone assumes that their expenses will go down in retirement. But not all of them do.&quot;</p> <p>For instance, if you are going to be home more often after retirement, your utility bills will typically rise. That's because your heat will be on all day and you'll be using more electricity because you'll be home more often.</p> <p>Some retirees also spend more on leisure, entertainment, or travel during their after-work years. Instead of taking one big trip a year, they might plan on taking two or three. They might take more frequent smaller trips to see their grandchildren.</p> <p>The takeaway? You need to look at your own retirement plans &mdash; where you'll be living, what you'll be doing &mdash; when deciding how much money you can afford to spend each year. Start with the rules of thumb, but tweak them to meet your needs.</p> <p>For instance, Deane-Bess said that retirees who want to travel frequently or live in a higher-cost community might need to withdraw just 2.5% to 3% of their savings portfolio every year.</p> <p>&quot;We are starting to see a pullback from some of the rules of thumb,&quot; Deane-Bess says. &quot;I have been in the industry for 18 years. When I started, there were lots of rules of thumb. But things are changing. Today, it's about taking a more detailed look at your individual retirement plans.&quot;</p> <p><em>How much do you plan to spend in retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/how-much-can-you-afford-to-spend-in-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-states-with-the-lowest-taxes-for-retirees">7 States With the Lowest Taxes for Retirees</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-why-your-retirement-cost-calculations-may-be-wrong">8 Reasons Why Your Retirement Cost Calculations May Be Wrong</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/retire-for-half-the-cost-in-these-5-countries">Retire for Half the Cost in These 5 Countries</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-sites-and-apps-to-help-you-track-your-spending-and-stick-to-your-budget">10 Sites and Apps to Help You Track Your Spending and Stick to Your Budget</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-your-boomer-parents-could-afford-that-you-cant">8 Things Your Boomer Parents Could Afford That You Can&#039;t</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement cost of living expenses inflation social security spending Thu, 05 Nov 2015 11:15:12 +0000 Dan Rafter 1605094 at http://www.wisebread.com 8 Things Your Boomer Parents Could Afford That You Can't http://www.wisebread.com/8-things-your-boomer-parents-could-afford-that-you-cant <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-things-your-boomer-parents-could-afford-that-you-cant" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_classic_car_000013375059.jpg" alt="Boomer parent affording things that we can&#039;t" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Many of us have probably been subjected to the judgement of our Baby Boomer parents, who wonder why younger generations are facing more debt and financial troubles.</p> <p>I won't defend the spendthrift ways of Millennials and Gen-Xers, but the truth of the matter is that many things are simply more expensive now than they used to be. Baby Boomers &mdash; those born between 1946 and 1964 &mdash; paid less for many of the things considered essential now.</p> <p>Here are eight things that our Baby Boomer parents could afford more easily than we can.</p> <h2>1. A Home</h2> <p>Interest rates were probably higher for Baby Boomers, but the average price of a home was considerably lower, even after adjusting for inflation. The <a href="http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/">Case Shiller Home Price Index</a> offers a good examination of home prices over time. Through most of the '60s, '70s, and '80s, the index was at about 120. Now it's near 170, an increase of about 40%. During the housing bubble, it topped 220 &mdash; that was a near doubling of prices after inflation. No wonder so many of us got into unnecessary housing debt.</p> <h2>2. College</h2> <p>We've all heard stories about Baby Boomers who claim to have attended college for just a few hundred bucks a semester. Indeed, education was a relative bargain for our folks, who in 1975 paid the <a href="http://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-board-time-1974-75-2014-15-selected-years">equivalent of $2,469</a> for a year of tuition and fees at a public university. The cost is more than four times that today. The College Board reports that we experienced increases of 9.5% above inflation during the 2009-10 school year, and another 6.5% above inflation in 2010-11.</p> <h2>3. A Car</h2> <p>A Baby Boomer may have bought his or her first car in 1970 for $3,450, or $20,781 in today's dollars. The average price of a car is now more than $30,000. The good news for today's car buyers is that quality of cars has improved, and there is a wider range of choices, including many at the more affordable end.</p> <h2>4. Child Care</h2> <p>There's not a lot of data on child care costs for older Baby Boomers, but for those raising kids in the 1980s, things were much easier on the wallet than today. The U.S. Census Bureau reported that the <a href="https://www.census.gov/prod/2013pubs/p70-135.pdf">average weekly child care payment</a> in 1985 was about $40, or $84 in 2011 dollars. Compare that to the $143 weekly paid by families in 2011.</p> <h2>5. Food</h2> <p>It cost less for your parents to serve dinner. The Department of Agriculture reported that the price of food has <a href="http://www.ers.usda.gov/amber-waves/2015-july/growth-in-inflation-adjusted-food-prices-varies-by-food-category.aspx#.ViZwTH6rRaR">outpaced the rate of inflation</a> in many areas, including fresh fruits and vegetables, eggs, red meat, and poultry. Fresh fruits and vegetables are 40% more expensive than in 1985, and that's after adjusting for inflation.</p> <h2>6. Health Care</h2> <p>In 1970, per capita spending on health care was a mere $356, or $2,144 in today's dollars. That rose to $8,402 per person in 2010. Some of this increase could be due to the availability of more advanced medical treatment, but there's no doubt it costs more to get sick these days.</p> <h2>7. Going to the Movies</h2> <p>In this case, it may actually depend on the year. A person born in 1946 might have attended the movies as a teenager for 50 cents, or about $4.15 in today's dollars. That's a steal compared to a current ticket, which comes in at $8.61, according to The Hollywood Reporter. But a Baby Boomer attending the movies in the 1970s may have paid prices that, when adjusted for inflation, weren't too much less than today. One thing is for sure: Moviegoers of yesteryear were not subjected to the additional charges for 3D or IMAX screenings that can often add several dollars to the price of a ticket today.</p> <h2>8. Pro Sports Tickets</h2> <p>A ticket to a baseball game cost an average of $28 in 2015, according to Team Marketing Report. The average ticket price is $54 for the NBA, $86 for the NFL, and $62 for the NHL. The cost of player salaries and state-of-the-art stadiums has brought us away from the days when a bleacher seat could be had for $1. At the first Super Bowl in 1967, the average ticket price was $12, or $85 in today's dollars, Sports Illustrated reported. The average ticket price for the Super Bowl in 2014 was an eye-popping $1,250.</p> <p><em>What else was cheaper for Boomers than the generations following?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/8-things-your-boomer-parents-could-afford-that-you-cant">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-nice-ways-to-tell-your-spendy-friends-youre-staying-on-budget">7 Nice Ways to Tell Your Spendy Friends You&#039;re Staying on Budget</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-save-during-an-inflation">Why save during an inflation?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/73-easy-ways-to-save-money-today">73 Easy Ways to Save Money Today</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-personal-finance-rules-you-should-be-breaking">15 Personal Finance Rules You Should Be Breaking</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-spend-til-the-end">Book review: Spend &#039;til The End</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance baby boomers inflation parents saving spending tuition Thu, 29 Oct 2015 15:15:44 +0000 Tim Lemke 1602062 at http://www.wisebread.com Best Money Tips: Ways to Beat Inflation http://www.wisebread.com/best-money-tips-ways-to-beat-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-ways-to-beat-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/buying-new-house-178142023-small.jpg" alt="buying new home" title="buying new home" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found some awesome articles on ways to beat inflation, cutting health care costs, and saving big on back to school shopping.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.moneytalksnews.com/2014/08/06/10-ways-to-beat-inflation/">10 Ways to Beat Inflation</a> &mdash; If you want to beat inflation, buy a house and drive a fuel efficient car. [Money Talks News]</p> <p><a href="http://www.kiplinger.com/slideshow/spending/T027-S001-30-ways-to-cut-your-health-care-costs/index.html?si=1">50 Ways to Cut Your Health Care Costs</a> &mdash; Avoiding the emergency room and staying in your network can help you cut health care costs. [Kiplinger]</p> <p><a href="http://www.creditsesame.com/blog/save-big-on-back-to-school-shopping/">7 Smart Ways to Save Big on Back to School Shopping</a> &mdash; Save big on back to school shopping by shopping early and using apps before you check out. [Credit Sesame]</p> <p><a href="http://tiphero.com/avoid-these-common-mistakes-in-your-next-home-improvement-project/">Avoid These Common Mistakes in Your Next Home Improvement Project</a> &mdash; To avoid home improvement disasters, perfect your preparation and be realistic in what you're capable of doing. [Tip Hero]</p> <p><a href="http://moneyning.com/budgeting/how-i-trimmed-500-from-my-monthly-budget-in-4-easy-steps/">How I Trimmed $500 From My Monthly Budget in 4 Easy Steps</a> &mdash; Ditching your subscriptions can put you on the road to saving $500 on your monthly expenses. [MoneyNing]</p> <h2>Other Essential Reading</h2> <p><a href="http://studenomics.com/personal-finance/why-parents-shouldnt-pay-for-their-kids-college-education/">Why Parents Shouldn't Pay for Their Kids' College Education</a> &mdash; Parents probably shouldn't pay for their kids college education because it is possible to take out loans for college but not for retirement. [Studenomics]</p> <p><a href="http://www.savvysugar.com/Who-Pays-What-Wedding-29470895">Who Pays for What in a Wedding</a> &mdash; Typically the groom pays for the marriage license and the bride pays for the groom's ring in a wedding. [PopSugar Smart Living]</p> <p><a href="http://www.bargaineering.com/articles/long-search-new-windows.html">Some Surprising Help Turned My Long Search for New Windows Into a Low-Cost (or Lower-Cost) Reality</a> &mdash; Did you know you can buy windows on Groupon? [Bargaineering]</p> <p><a href="http://www.wealthinformatics.com/2014/06/29/five-reasons-to-visit-state-parks-instead-of-national-parks/">Five Reasons to Visit State Parks Instead of National Parks</a> &mdash; State parks tend to have more variety and less traffic than national parks [Wealth Informatics]</p> <p><a href="http://parentingsquad.com/7-solutions-for-first-day-of-school-jitters">7 Solutions for First Day of School Jitters</a> &mdash; To help your kids not have jitters on the first day of school, model a good attitude. [Parenting Squad]</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> of <a href="http://www.wisebread.com/best-money-tips-ways-to-beat-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-save-during-an-inflation">Why save during an inflation?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/weird-money-facts-5-true-cases-of-unbelievable-inflation">Weird Money Facts: 5 True Cases of Unbelievable Inflation</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-bond-rates-go-to-zero">I Bond rates go to zero</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/shadow-government-statistics-is-the-government-manipulating-numbers-to-make-the-economy-look-better-">Shadow Government Statistics - Is the government manipulating numbers to make the economy look better than it really is?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance best money tips inflation Mon, 11 Aug 2014 19:00:03 +0000 Ashley Jacobs 1179538 at http://www.wisebread.com Weird Money Facts: 5 True Cases of Unbelievable Inflation http://www.wisebread.com/weird-money-facts-5-true-cases-of-unbelievable-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/weird-money-facts-5-true-cases-of-unbelievable-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-474671699.jpg" alt="old coins" title="old coins" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Inflation. It's a simple enough concept to grasp, although the economics behind it can be way more complex. Basically, inflation is a continual increase in the prices of goods and services. What was $1 last year could be $1.07 this year and $1.14 the year after that. This results in decreased buying power for consumers, especially if wages do not keep up with inflation.</p> <p>But when <a href="http://www.investopedia.com/terms/h/hyperinflation.asp">hyperinflation</a> occurs, all hell breaks loose. Whereas inflation is gradual, and hopefully not very noticeable, hyperinflation is a rapid increase in the cost of goods and services over very short periods of time. This can often happen during times of war, sociopolitical upheavals, or other government crises. There are books dedicated to this subject, but the net result is that money starts getting printed rapidly, in higher and higher denominations, and the value of the smaller currencies become worthless. When you're paying $1,000,000 for an apple, you can't buy much for a $1 any more. (See also: <a href="http://www.wisebread.com/savings-rates-below-inflation-save-anyway?ref=seealso">Saving Rates Below Inflation? Save Anyway</a>)</p> <p>There have been many cases of hyperinflation over the years. Here, we look at five of the worst. And in case you're thinking this is ancient history, one of the biggest occurred <em>within the last decade</em>.</p> <h2>1946 Hungary</h2> <p>Imagine the prices of everything doubling overnight. That would be tough. Now, imagine that happening day after day, week after week. That's what happened in Hungary in 1946, by far the worst case of hyperinflation on record, when the highest monthly inflation topped out at 13,600,000,000,000,000%!</p> <p>That's a daily inflation rate of 195%.</p> <p>Prices doubled every 15.6 hours, and suddenly people were paying for their groceries with 100,000,000,000,000,000,000 pengő bills (that's <em>one hundred quintillion</em>, if you're counting). People were carrying money around in suitcases, and banknotes were often stamped with new denominations as new money could not be printed quickly enough. When the pengő was replaced by a new currency &mdash; the <em>forint</em> &mdash; in August of 1946, all of the Hungarian banknotes in circulation equated to 1/1,000 of a US dollar, and four hundred octillion pengő became just one forint.</p> <h2>1923 Germany</h2> <p>In the middle of August 1921, during the final years of the Weimar republic, Germany began purchasing foreign currency with Marks at any price. This, obviously, had the knock-on effect of devaluing the currency.</p> <p>When Germany had to pay for war reparations demanded by the Treaty of Versailles, things really started to go off the rails. Inflation hit a high of 29,500% per month, with prices doubling every 3.7 days. To put this in perspective, the <a href="http://en.wikipedia.org/wiki/German_Papiermark">papiermark</a> was exchanging at a rate of 4.2 per US dollar in 1914. By August 1923, it was 1 million <em>papiermark</em> per US dollar, and two months later, it was 238 million <em>papiermark</em> to one US dollar! A special medal exists that recognizes this insanity, reading &quot;On November 1923, 1 pound of bread cost 3 billion; 1 pound of meat: 36 billion; 1 glass of beer: 4 billion.&quot; A typical grocery shopping trip could cost a family trillions of <em>paipermarks</em>, and the smaller notes were so worthless they were used as wallpaper.</p> <h2>1994 Yugoslavia</h2> <p>Once again, regional conflicts and government mismanagement were responsible for this case of hyperinflation.</p> <p>A massive inequity between supply and demand, and the government's solution to print money ad nauseam, led to the complete collapse of the Yugoslavian <em>dinar</em>. The highest monthly inflation reached 313,000,000%, the equivalent of 65% per day, with prices doubling every 1.4 days. In fact, between 1993-1995, it is estimated that prices increased approximately 5 quadrillion percent. Revaluations of the <em>dinar</em> happened five times, with one million <em>dinars</em> becoming one new <em>dinar</em>, and one new new <em>dinar</em> then becoming 1 billion old new <em>dinars</em>, and so on! Confusing isn't even close. One huge side effect of this was that residents stopped paying bills. After all, why pay a bill today, when next week that bill will have been devalued by a factor of a thousand?!</p> <h2>2008 Zimbabwe</h2> <p>Just six years ago, Zimbabwe was in a financial meltdown of historic proportions. It could all be traced back to the failed policies of President Robert Mugabe, whose land redistribution programs crippled the country's ability to produce food. And when demand vastly outstrips supply, prices quickly begin to skyrocket.</p> <p>With massive loans to pay, Zimbabwe started printing money like it was going out of fashion (which it was about to), putting 21 trillion ZWD (Zimbabwean Dollars) into circulation to pay off IMF loans. In a few years, it printed another 60 trillion ZWD to pay the salaries of soldiers and government workers. The effects were devastating to the economy. In one month, inflation hit almost 80,000,000,000%, with prices doubling every 24 hours. A loaf of bread cost $35 million ZWD. And by April of 2008, the $50 million ZWD note was worth a little over one US dollar. They were printing so much money, they ran out of paper. The country was full of trillionaires and almost all of them were struggling to survive.</p> <h2>1944 Greece</h2> <p>You may have heard of the financial woes of Greece today, but they're nothing compared to 1944.</p> <p>Greece incurred a great deal of debt during World War II, and was occupied by the Axis powers for much of that time. In fact, in just one year Greece went from a budget surplus of 271 million drachma in 1939, to a deficit of 790 million drachma in 1940. And it only got worse. Tragically, the expectation of future inflation, and the government paying debts in gold francs, caused the general public to lose faith in the <em>drachma</em>. The government's limited ability to collect taxes snowballed, and in record time the <em>drachma</em> was almost worthless. In 1942, the highest denomination of currency was the 50,000 <em>drachma</em> note. Just two years later, it was the 100 trillion <em>drachma</em> note. Fortunately, by 1947, after the creation of a Currency Committee, prices had stabilized, the currency had been revalued, and Greece had dug its way out of a horrific cycle of financial destruction.</p> <p><em>Can you recall any examples of devastating inflation? Please share in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/weird-money-facts-5-true-cases-of-unbelievable-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/weird-money-facts-10-things-you-didnt-know-about-counterfeit-money">Weird Money Facts: 10 Things You Didn&#039;t Know About Counterfeit Money</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-your-boomer-parents-could-afford-that-you-cant">8 Things Your Boomer Parents Could Afford That You Can&#039;t</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-rising-interest-rates-can-help-your-wallet">8 Ways Rising Interest Rates Can Help Your Wallet</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-surprising-ways-cheap-oil-impacts-your-wallet">8 Surprising Ways Cheap Oil Impacts Your Wallet</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance currency inflation weird money facts Thu, 15 May 2014 08:12:23 +0000 Paul Michael 1139360 at http://www.wisebread.com Savings Rates Below Inflation? Save Anyway http://www.wisebread.com/savings-rates-below-inflation-save-anyway <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/savings-rates-below-inflation-save-anyway" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/watering-flowers.jpg" alt="Watering flowers" title="Watering Flowers" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>When savings rates are below the inflation rate, it's easy to think, &quot;Why should I save? Even after the interest, I'm losing money!&quot; But there are two good reasons to save, even in the face of a negative return. (See also: <a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">While Waiting for Rates, I-Bonds</a>)</p> <p>Both your short-term and long-term goals depend on an appropriate level of savings.</p> <h3>When You Need Cash, Only Cash Will Do</h3> <p>Your short-term goals depend on savings because only cash is cash. That is, your debts and other obligations are owed in dollars (or whatever your local currency is). Cash in the bank is what will enable you to pay your debts. Any other investment &mdash; gold, stocks, foreign currency, whatever &mdash; may (or may not) do well as an investment, but is of no use in paying your bills. The utility company will not take your tenth-ounce kruggerrand or your 50-euro banknote. They want cash.</p> <p>The fact is, <a href="http://www.wisebread.com/managing-your-short-term-money">liquidity balances</a> (the money you keep on hand to bridge the gap <a href="http://www.wisebread.com/how-often-do-you-get-your-paycheck">between one paycheck and the next</a>) and your <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund">emergency fund</a> (the money you keep on hand to cover unexpected expenses or an unexpected drop in income) both need to be in cash.</p> <h3>Your Long-Term Goals Need Funds Too</h3> <p>Your long-term goals depend on savings, because savings is what will fund your investments. But interest rates on savings below the inflation rate create the potential to start thinking that you're losing money every month, and once you do that, it's easy to delude yourself into figuring that it makes sense to spend the money &quot;before it loses its value.&quot;</p> <p>That particular delusion takes two forms.</p> <p>The first is the <em>investment delusion</em>, where you add what you figure you're losing to inflation to your estimate of investment return. So, if you think you're a stock market genius who can earn 8% in the stock market, and the inflation rate is running along at 2%, you imagine that your stock market return would be like getting 10% better than cash.</p> <p>The second is the <em>buy now delusion</em>, where you figure you might as well pull the trigger on any planned purchases now, since if you wait the price will just go up. (There is a particularly pernicious version of this, where you figure it makes sense to borrow money to make the purchase, since you'll be paying the debt back with cheaper inflated dollars.)</p> <p>The fact is, investment decisions and spending decisions need to be judged on their own merits. The inflation rate is one factor to include (although when the inflation rate is as low as it is now, it's a pretty small factor). The return you can get on cash is also a factor to consider &mdash; but very low rates on cash actually support keeping higher cash balances. (Back when you could earn 14% on your money fund, it was worth going to some effort to minimize the cash in your wallet and pay your bills at the last possible moment, so you could keep that money working for as long as possible. When you can't even get 1% on your money, the convenience of having cash on hand tends to outweigh the tiny lost income.)</p> <p>All that should have very little impact on how much of your money <a href="http://www.wisebread.com/why-invest-in-the-stock-market">goes for investments</a> or on the <a href="http://www.wisebread.com/best-asset-allocation-for-your-portfolio">mix of investments you select</a>. Your investment portfolio should be <a href="http://www.wisebread.com/the-false-goal-of-maximizing-investment-returns">structured to support all your long-term goals</a> &mdash; retirement, college for the kids, etc.</p> <p>That's because those goals &mdash; your long-term goals &mdash; are the ones that are threatened when you imagine that savings rates below the inflation rate are a reason to spend rather than save.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/savings-rates-below-inflation-save-anyway">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-let-low-interest-rates-make-you-stupid">Don&#039;t let low interest rates make you stupid</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-save-during-an-inflation">Why save during an inflation?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-bond-rates-go-to-zero">I Bond rates go to zero</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-things-your-boomer-parents-could-afford-that-you-cant">8 Things Your Boomer Parents Could Afford That You Can&#039;t</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance inflation interest rates saving Tue, 07 Aug 2012 10:00:42 +0000 Philip Brewer 948715 at http://www.wisebread.com How Much Money Will You Need to Retire? http://www.wisebread.com/how-much-money-will-you-need-to-retire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-money-will-you-need-to-retire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement-planning-piggy-bank.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p><em>This article was made possible by support from </em><a href="http://r1.fmpub.net/?r=http%3A%2F%2Fad.doubleclick.net%2Fclk%3B258577129%3B76092346%3Bw&amp;k4=3837&amp;k5={banner_id}"><em>OppenheimerFunds</em></a><em>.</em></p> <p>Planning for retirement seems like a daunting task. Calculations can be complex, especially if you want to be precise in projecting yearly cash flows over your lifetime. And considering all aspects of your financial picture can be overwhelming and confusing if you're uncertain about income needs, investment returns, inflation, <a href="http://www.wisebread.com/certainties-death-taxes-and-change">tax rules</a>, and government programs in retirement.</p> <p>To make this process easy, I&rsquo;ve put together a downloadable spreadsheet entitled &ldquo;<a href="http://static2.killeraces.com/files/fruganomics/retirement_planning_worksheet.xls">Retirement Planning in 4 Easy Steps</a>&rdquo; that should take just a few minutes to complete. You should have a clearer picture of your financial future and what steps you can now take so that you can live retirement in the style you want. (Note that for illustration, I have populated the spreadsheet with income and investment numbers.)</p> <h3>Step 1: Determine Annual Income Needed From Financial Investments During Retirement</h3> <p>Financial experts estimate that you will need <a href="http://money.usnews.com/money/blogs/On-Retirement/2012/02/22/retirement-gotchas-experts-rarely-talk-about">75% to 85%</a> of your current annual income in retirement. These percentages may seem high, especially if you have acquired all the assets you think you&rsquo;ll ever need by retirement age. Further, you might think that many expenses will disappear, like your mortgage payment, or they&rsquo;ll shrink dramatically, like your grocery bill when your kids move away. But you&rsquo;ll still have to pay property taxes, insurance, and maintenance on your house. Plus, higher expenses for healthcare and personal care may cancel out grocery savings, particularly if a family member develops a chronic illness.</p> <p>Fortunately, you may have sources of annual income other than retirement accounts, like a pension or business revenue. Your retirement savings or nest egg, then, just needs to cover the difference between total income needed for retirement and income from other sources.</p> <p>To determine annual income needed from financial investments, enter this information in the spreadsheet: current annual income, expected income from other sources, and percentage income needed in retirement, going lower if you plan to live frugally and will have paid off debt and higher if you desire to live luxuriously or will still have a mortgage in those later years.</p> <h3>Step 2: Calculate the Future Value of Current Retirement Savings and Annual Contributions to Retirement Funds</h3> <p>If you&rsquo;ve already set aside money for retirement and are regularly saving money each year, figure out what those investments will be worth when you retire.</p> <p>Enter the value of the retirement savings now, annual contributions to retirement savings, age now and at retirement, and expected investment return during your working years. Calculate the future value of your retirement savings if you simply stick to this plan of investment.</p> <h3>Step 3: Determine the Investment Value Needed to Fund Retirement Expenses</h3> <p>There are two schools of thought in determining the investment value needed for retirement. One approach is to save enough to spend investment returns and draw down the principal each year, depleting savings over your lifetime; ideally, you&rsquo;ll die about the time you run out of money. The other method is to build a nest egg that allows you to live off the investment earnings and preserve the principal in case you live longer than expected. To keep the calculations simple, I have chosen the second method.</p> <p>Enter your expected investment return in retirement and calculate the amount needed to generate the annual income to cover retirement expenses as specified in Step 1.</p> <h3>Step 4: Figure Out How Much to Increase Annual Savings to Meet Your Retirement Goals</h3> <p>After calculating how much investment in retirement savings you need, figure out how much extra to save to reach your goals. First, determine the shortage (or surplus if that applies); then calculate the additional amount to save and invest each year.</p> <p>This approach is fairly simple, but ignores taxes, <a href="http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation">inflation</a>, and investment risk. Inflation, in particular, can dramatically increase expenses and change retirement scenarios; for example, consider how inflation at 1% and 2% during your working years could increase later requirements for income, investment needed, and annual savings contributions.</p> <style>td {border: 1px solid gray;}</style><table cellspacing="0" cellpadding="0" border="1"> <tbody> <tr> <td width="220" valign="top"> <p>Inflation/Changes in Retirement Scenarios</p> </td> <td width="57" valign="top"> <p align="center">0%</p> </td> <td width="77" valign="top"> <p align="center">1%</p> </td> <td width="81" valign="top"> <p align="center">2%</p> </td> </tr> <tr> <td width="220" valign="top"> <p>Income to Be Funded From Investments</p> </td> <td width="57" valign="top"> <p align="right">$50,000</p> </td> <td width="77" valign="top"> <p align="right">$67,000</p> </td> <td width="81" valign="top"> <p align="right">$91,000</p> </td> </tr> <tr> <td width="220" valign="top"> <p>Investment Needed</p> </td> <td width="57" valign="top"> <p align="right">$625,000</p> </td> <td width="77" valign="top"> <p align="right">$838,000</p> </td> <td width="81" valign="top"> <p align="right">$1,138,000</p> </td> </tr> <tr> <td width="220" valign="top"> <p>Additional Savings Needed Per Year</p> </td> <td width="57" valign="top"> <p align="right">$5,120</p> </td> <td width="77" valign="top"> <p align="right">$7,800</p> </td> <td width="81" valign="top"> <p align="right">$11,600</p> </td> </tr> </tbody> </table> <p>To keep pace with inflation, consider increasing your savings as your income grows and pursuing higher investment returns during your working years, or discovering ways to reduce expenses in retirement.</p> <p>Fluctuations in investment returns can also affect the viability of retirement plans. For simplicity, the spreadsheet uses a reasonable but not guaranteed investment return during your working years (6%) and a slightly higher rate in retirement (8%). But if the investment return was 7% or 6% in retirement, you would have to save more each year.&nbsp;</p> <table cellspacing="0" cellpadding="0" border="1"> <tbody> <tr> <td width="242" valign="top"> <p>Investment Returns/Changes in Retirement Scenarios</p> </td> <td width="61" valign="top"> <p align="center">8%</p> </td> <td width="66" valign="top"> <p align="center">7%</p> </td> <td width="72" valign="top"> <p align="center">6%</p> </td> </tr> <tr> <td width="242" valign="top"> <p>Investment Needed</p> </td> <td width="61" valign="top"> <p align="right">$625,000</p> </td> <td width="66" valign="top"> <p align="right">$714,000</p> </td> <td width="72" valign="top"> <p align="right">$833,000</p> </td> </tr> <tr> <td width="242" valign="top"> <p>Additional Savings Needed Per Year</p> </td> <td width="61" valign="top"> <p align="right">$5,120</p> </td> <td width="66" valign="top"> <p align="right">$6,300</p> </td> <td width="72" valign="top"> <p align="right">$7,800</p> </td> </tr> </tbody> </table> <p>To earn such returns and still protect your retirement funds, allocate your money to higher-return, higher-risk investments, such as stocks, mutual funds, ETFs, etc. (keeping in mind that these investments may lose rather than gain in value) and lower-risk, lower-return savings, such as bank CDs, savings accounts, money market funds, treasury bills, or corporate bonds. To generate an overall return of 7%, for example, equities of $400,000 would need to earn 10% combined with a 1% return of $200,000 in a savings account.</p> <p>So don&rsquo;t ignore retirement-planning wild-cards like inflation or uneven investment growth. But don&rsquo;t let fear or uncertainty about the future keep you from taking easy steps toward retirement now.</p><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/how-much-money-will-you-need-to-retire">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-canada-s-tfsa-is-totally-awesome">Why Canada’s TFSA Is Totally Awesome</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/401k-or-ira-you-need-both">401K or IRA? You Need Both</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-simple-ways-to-boost-an-underperforming-401k">5 Simple Ways to Boost an Underperforming 401(k)</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">7 Cool Things Bonds Tell You About the Economy</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement acheiving goals inflation retirement savings Tue, 26 Jun 2012 10:36:09 +0000 Julie Rains 935251 at http://www.wisebread.com How to Understand and Protect Yourself From Inflation http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-understand-and-protect-yourself-from-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000020437431Small.jpg" alt="Piggy banks" title="Piggy banks" class="imagecache imagecache-250w" width="250" height="151" /></a> </div> </div> </div> <p><em>This article was made possible by support from&nbsp;</em><em><a href="http://r1.fmpub.net/?r=http%3A%2F%2Fad.doubleclick.net%2Fclk%3B258577129%3B76092346%3Bw&amp;k4=3754&amp;k5={banner_id}">OppenheimerFunds</a>.</em></p> <p>At the time of Julius Caesar, the monthly pay for a Roman legionary soldier was one aureus &mdash; a gold coin that weighed about 8 grams (just over one-quarter of a troy ounce) and was enough money to buy 200 pounds of flour. Eight of them were enough to buy 23 acres of woodland in Kent.</p> <p>That much gold would be worth a bit over $400 today &mdash; which will buy you perhaps 500 pounds of whole wheat flour (maybe 1,000 pounds of white flour). You'd have to be looking at some pretty remote places before you could find 23 acres for $3,300, but there's land that cheap.&nbsp;</p> <p>During the next three hundred years, there was inflation in Rome. The aureus shrunk to 7.3 grams and then 6.5 grams and then was replaced by a new gold coin that weighed 5.5 grams.</p> <p>They used a different strategy for their silver coins. Instead of shrinking them, they debased them with base metals. The value of the main silver coin, the denarius, collapsed. One of Julius Caesar's soldiers could have bought an aureus for 25 denarii. Three hundred years later, it took 275,000 denarii to buy even the new, shrunken gold coin.</p> <p>Take a guess at just how high the inflation rate needs to be to produce that sort of collapse in value. I'll give you the answer in a bit.</p> <h3>The Gold Standard to Fiat Currencies</h3> <p>People always talk about inflation as if there were some golden age when we were blissfully free of it. That isn't really true, but it was kinda true during the age of the gold standard. For a couple hundred years, during the eighteenth and nineteenth centuries and up to about 1930, you could make really long-term plans knowing that your British pounds and U.S. dollars would be worth as much to your children and your grandchildren as they were to you.</p> <p>The experience of the Great Depression changed everything. Since then the common wisdom has been that, although inflation is bad, any past inflation should be accepted as a done deal. Inflation should be kept low, but no attempt should be made to reverse it.</p> <p>The result has been that, unlike during the nineteenth century &mdash; when you could leave your daughter an income of a few hundred pounds a year and be confident that she'd be as well off in her old age as in her youth &mdash; everybody who makes plans has to think about inflation.&nbsp;</p> <h3>How Bad Is Inflation Going to Be?</h3> <p>Let me give you two numbers.</p> <p>The first is 7.8%. That's the inflation rate from 1971 (when Nixon closed the gold window, ending the last vestige of the gold standard) through 1983 (the end of Paul Volker's first term as Chairman of the Federal Reserve). By the end of that period, it would have taken $2.46 to buy what a dollar would have bought at the beginning.</p> <p>The second is 3%. That's the inflation rate for the two periods before and after that, from 1933 (when the U.S. went off the gold standard as far as ordinary people were concerned) until 1971, and from 1983 through today. In both periods, inflation turns out to have been almost exactly 3%.</p> <p>Oh, and you remember the terrible Roman inflation that made the value of the denarius collapse so that it took 275,000 to buy what 25 would have bought three hundred years before? That also works out to an inflation rate of just about 3%. That's all it takes to destroy your money if you give it three centuries to do its work.</p> <p>If I were making plans, I'd bet that about 3% is the most likely inflation rate. As you can see, there is ample historical precedent. I'd be surprised to see a rate higher than 7.8%.</p> <p>At an inflation rate of 3%, your money loses half its value in 24 years. Ordinary people make plans that stretch off for that long or longer &mdash; when they're planning their career, when they're planning their retirement, when they're planning to take out a mortgage to buy a house. Failure to plan for inflation may be disastrous for individuals who are surprised by the devaluation of their savings and assets. But the distortions to the real economy from a 3% rate are minimal, especially if the rate is fairly steady.</p> <p>Higher rates, on the other hand &mdash; especially rates that begin to approach 7.8% &mdash; are completely untenable. Not only is the value of cash destroyed quickly, but long-term planning is also impossible, because rates that high are unstable. Will they spike up to 15%? Return to 3%? There's no way to guess. Worse, a rate that high imposes real costs on the economy. Because no one can count on prices being stable even from day to day, people have recheck prices for every routine transaction.</p> <p>Given that inflation can change or even ruin long-term financial plans, what's our best move to protect our wealth?&nbsp;</p> <h3>Four Ways to Protect Your Savings From&nbsp;Inflation</h3> <p>For inflation protection, the first suggestions are always gold, inflation-indexed securities, cash, and equities.</p> <p><b>Gold</b></p> <p>Over the centuries, gold has held its value like nothing else. Over the decades, though, gold is sometimes pretty crappy. You'd have had to spend over $500 to buy an ounce of gold in 1979 or 1980 &mdash; and gold wouldn't be worth that much again until 2005. For most of two decades you'd have been sitting on a loss.</p> <p>On top of that, the value of gold doesn't grow &mdash; a stash of gold coins will buy about as much flour or land as it would have bought 20 centuries ago.</p> <p>That's not to say that gold doesn't have a place in your portfolio, but it was a lot more appealing during the couple of decades when you could buy it for $300 an ounce than it is now.</p> <p><b>Inflation-Indexed Securities</b></p> <p>The U.S. Treasury issues several inflation-protected securities, called TIPS. They pay a yield set at auction for the life of the bond &mdash; but they pay that yield on principle adjusted for inflation. If you'd bought a 3% 10-year TIPS bond in 2002, it would be paying that rate on its inflation-adjusted value, which is closing in on $1,280, and might well reach it before the bond matures next month.</p> <p>There are several downsides to TIPS, one of which is that you have to pay taxes on the inflation adjustment annually, even though you don't actually get the cash until the bond matures. Another is that the yields have collapsed to near zero (and in fact are currently trading at levels that imply a negative interest rate).&nbsp;</p> <p>One special case of inflation-indexed security is the <a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">Series I Savings Bond</a>, which is actually rather interesting right now. It also pays inflation plus a fixed rate, and its fixed rate is also zero at the moment &mdash; but can't go negative. A bond that you buy today will yield a return equal to the inflation rate &mdash; and will yield that return for almost any time period you want. You have to hold it for one year, but after that you have the option of cashing it in any time you want or holding it 30 years. (There's a penalty of three months interest if you cash it in after less than five years, but that will be very small unless inflation gets quite high &mdash; and if inflation gets quite high, you'll probably want to keep the bond anyway.)</p> <p>The main downside of Series I Savings Bonds is that you're limited to buying $10,000 per year. If you're a small investor, that's probably not a serious obstacle.</p> <p><strong>Cash</strong></p> <p>Very short-term investments like T-bills or money market funds usually yield enough to stay ahead of inflation. The return on cash was almost always several percentage points above inflation from 1960 to 1990.</p> <p>Sadly, that's not true any more. For most of the last decade, cash has paid less than the inflation rate, because central banks are holding rates down to minimize the harm of the financial crisis.</p> <p>Until the central banks relent, the yield on cash is too low to protect you from even small amounts of inflation.</p> <p><b>Equities</b></p> <p>Investing in the stock market provides inflation protection, because the companies are working in the real economy &mdash; buying and selling things that have real value.</p> <p>During a period of inflation, companies will face rising costs for the things they buy and the wages they pay their workers &mdash; but they'll generally be able raise the price of the things they sell by a similar amount.</p> <p>The result is that investing in stocks during an inflation isn't too different from investing in stocks any other time. You want a diversified portfolio. You want your money invested in companies with good management in a profitable business. If you do that, the inflation thing will sort itself out.</p> <p><strong>Candy Bars</strong></p> <p>A final inflation example &mdash; how about candy bars? The ones your parents or grandparents will have told you cost a nickel when they were kids, the ones that cost $1 now? What will they cost in 2050?</p> <p>If inflation ran at 7.8%, they'd cost close to $20, but I don't think that's at all likely. An inflation rate that high would do such serious damage to the economy that it could never be sustained for decades.</p> <p>Nope. I'm willing to bet that inflation will continue on at about the same 3% rate that we've seen over and over again for the past 2000 years. If I'm right, they'll cost about $3.</p> <p><em>The opinions expressed in this post are solely those of the author</em>.</p><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/new-rate-set-for-series-i-savings-bonds">New rate set for series I savings bonds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-you-wasting-68000-on-gas">Are You Wasting $68,000 on Gas?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-save-during-an-inflation">Why save during an inflation?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/help-i-bought-a-stock-dud-what-now">Help, I Bought a Stock Dud! — What Now?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment equities gold standard inflation savings Wed, 13 Jun 2012 10:36:08 +0000 Philip Brewer 934373 at http://www.wisebread.com Why Inflation Isn't as Bad as You Think http://www.wisebread.com/why-inflation-isnt-as-bad-as-you-think <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-inflation-isnt-as-bad-as-you-think" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/balloons.jpg" alt="Woman holding balloons" title="Woman holding balloons" class="imagecache imagecache-250w" width="250" height="137" /></a> </div> </div> </div> <p>When talking to baby boomers, it's not uncommon for the discussion to move to how much cheaper things were back in the day. &quot;Coke was just a nickel! Hamburgers were selling for 10 cents!&quot; The natural progression in the conversation, of course, will lead to inflation and how destructive it could be to our retirement plans.</p> <p>Yet, inflation isn't nearly as bad as most people think it is. Here are five reasons why inflation won't be as devastating to your retirement savings as you might think. (See also:&nbsp;<a href="http://www.wisebread.com/how-to-live-with-inflation">How to Live With&nbsp;Inflation</a>)</p> <h3>1. A Significant Portion of Your Financial Assets Are Actually Inflation Adjusted</h3> <p>You can flat out invest in TIPS, but even stocks will keep up with inflation in the long term. This is because while inflation initially affects a company's bottom line through cost increases, the company will eventually pass that onto consumers by raising prices.</p> <p>Your house is another asset that keeps up with inflation fairly well. This is due primarily to rent and wage increases, which will both push up home prices in the long run.</p> <h3>2. Sometimes Inflation Can Work in Your Favor</h3> <p>Tax brackets, for example, are inflation adjusted so that you need a higher income to be taxed at the higher rates. In other words, you will eventually have a smaller tax bill through time unless your income actually increases. Retirement fund contribution limits also increase with inflation, which means that you can put more away for your future without Uncle Sam grabbing a share first. The maximum limit you can put in a 401(k) increased by $500 in 2012 due to inflation, allowing you to defer taxes for a larger amount.</p> <h3>3. Inflation Probably Isn't Even Why You're Spending More</h3> <p>You are likely spending more because you inflated your lifestyle. Instead of a landline, you got a cell phone, and eventually a smart phone with that extra data plan. You used to eat ramen, but you've upgraded to that Fettuccine Alfredo at a fine restaurant. You used to clean with a reusable cloth, but you are using sanitized wipes.</p> <p>It's not limited to upgrading your life either. When you weren't making as much money, you might've gone out of your way to switch your cable TV provider every few months to take advantage of the broadband promotions companies offered. But do you still do this?</p> <p>The good news is this is that there are likely alternatives you can find to cut costs if you truly have to do so. And since you already know you can live happily without the recent luxuries, you can rest knowing that you will be fine.</p> <h3>4. Some Things Are Actually Less Expensive Than Before</h3> <p>Not everything always goes up in price. Technology, for example, seems to have a downward trend. And I know this is bad for me, but I've loved the McChicken sandwich ever since I was a little kid. On the occasional trip to the <a href="http://www.wisebread.com/fast-food-slow-food-and-your-dollars-at-work">fast food</a> joint, I'm now paying $1 for each sandwich as opposed to $2.50 in the 90s.</p> <h3>5. A Significant Portion of Your Expenses Can Be Fixed</h3> <p>The monthly <a href="http://www.wisebread.com/6-great-reasons-for-paying-off-the-mortgage-on-your-home">mortgage payment</a> is a pretty big expense for most households, but you can choose to fix this cost for 30 years by applying for a 30-year fixed mortgage. You never know &mdash; inflation may get so out of control that all you have to do to satisfy your monthly mortgage payment in a few decades is skip buying a few cases of Coke a month.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/why-inflation-isnt-as-bad-as-you-think">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/more-than-just-inflation">More than just inflation</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-a-little-inflation-be-good">Can a Little Inflation Be Good?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-7-most-important-financial-moments-of-your-life">The 7 Most Important Financial Moments of Your Life</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance inflation mortgages rising prices Mon, 09 Jan 2012 11:24:21 +0000 David Ning 854222 at http://www.wisebread.com Why Inflation? http://www.wisebread.com/why-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/balloon-inflation-4.jpg" alt="Balloon Inflation" title="Balloon Inflation" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>We know how inflation happens&mdash;excess growth in the money supply. But <em>why</em> does inflation happen? (See also: <a href="http://www.wisebread.com/can-a-little-inflation-be-good">Can a Little Inflation be Good?</a>)</p> <p>Most people have a misunderstanding of inflation, because certain recent inflations&mdash;those of the 1970s in Europe and the United States&mdash;were unusual.</p> <p>The 1970s inflations were largely side-effects: Working to keep their economies running at full speed, central banks boosted the money supply on the theory that accepting a certain amount of inflation would allow the economy to run with a lower level of unemployment. That theory turned out to be false, but that's not the important point. What's important is that &quot;side-effect&quot; inflation is the exception.</p> <p>Most inflation&mdash;going back over hundreds of years and dozens of countries&mdash;is <em>deliberate</em> inflation, inflation produced with a goal: to reduce debt burdens.</p> <p>Most often, the goal is to reduce the burdens of government debt. (Makes sense&mdash;governments control the money supply, and they tend to run up a lot of debt.)</p> <p>Sometimes the goal is to reduce the debt burdens of ordinary folks. This isn't as common, in particular because inflation tends to hurt those with money, and people with money tend to have influence over the government. But, especially in democracies, and especially when society ends up divided between the few (who are very rich) and the many (who are poor and often in debt), the many turn out to have enough influence to call for some inflation to lower debt burdens.</p> <p>Inflation does work for this purpose, but it doesn't work very well.</p> <p>First of all, inflation only reduces the burdens of <em>debts that already exist</em> (and then only debts at a fixed interest rate). That's great for a government with a big public debt, and it's okay for homeowners (if they have fixed-rate mortgages) and recent graduates (if they have student loans at fixed rates), but it actually sucks for anyone who needs to borrow money&mdash;because they're going to face very high interest rates.</p> <p>Inflation also produces all sorts of distortions. It creates phantom profits (where much, all, or even more than all of the gain is just inflation)&mdash;not so bad, except that phantom profits are often taxed just like real ones. It causes suffering because many prices can go up daily, while incomes often go up only annually. It makes it hard to plan for the long term (because you don't know what prices will be tomorrow, let alone 10 years from now).</p> <p>The fundamental problem with inflation is that it fools people&mdash;it obscures true values and that leads people to make bad decisions. They get a good raise, and think they're better off. They see growing sales, and think their business is growing. Only later&mdash;when they see that prices have gone up and that even with the extra money that's come in they're no better off than they were&mdash;do they realize that they'd been misled. And if they made commitments based on that misunderstanding of their real situation, they may be in real trouble.</p> <p>Right at this moment, things rather hang in the balance. As I said, the pressure for inflation is always strongest when the money is in the hands of the few and the many are in debt. Especially in a democracy, that's a dangerous situation.</p> <p>Inflation is terribly pernicious. It's a blunt instrument that does reduce the burdens of debt, but does so in a crude fashion, with winners and losers selected for no more reason that that they had already borrowed (rather than being about to borrow) and that they had borrowed at fixed rates. There are things you can do to reduce the harm that inflation will do on your household economy (check out my post <a href="http://www.wisebread.com/how-to-live-with-inflation">How to Live with Inflation</a>), but even better is to avoid inflation.</p> <p>Perhaps knowing why inflation happens will help with that.<br /> &nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/why-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt">Peak Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-these-8-things-to-profit-from-the-improving-economy">Do These 8 Things to Profit From the Improving Economy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-new-normal-economy">The new normal economy</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peak-debt-and-income">Peak Debt and Income</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/self-sufficiency-self-reliance-and-freedom">Self-sufficiency, self-reliance, and freedom</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News debt deflation Economy inflation Wed, 12 Oct 2011 10:24:12 +0000 Philip Brewer 745459 at http://www.wisebread.com 5 Dreams You Won't Achieve Unless You Live Below Your Means http://www.wisebread.com/5-dreams-you-wont-achieve-unless-you-live-below-your-means <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-dreams-you-wont-achieve-unless-you-live-below-your-means" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/on_the_beach.jpg" alt="Man reading on the beach" title="Man reading on the beach" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>Living below your means is probably a personal finance tip that you already know about. In fact, spending less than you earn has been talked about so often that it doesn't even feel like advice anymore &mdash; many people's reaction is, &quot;Isn't this obvious?&quot;</p> <p>However, not everyone who knows what to do actually practices what they know. If you are one of those people, you probably won't be able to achieve the following dreams unless you start living within your means. (See also: <a href="http://www.wisebread.com/living-within-your-means-isnt-nasty">Living Within Your Means Isn't Nasty</a>)</p> <h3>Having More Time (and Working Less)</h3> <p>Spending less than you earn gives you the option to have more time to do things you actually want to do. You don't have to take a job with tons of overtime just because you need the money or a far away job that sucks out all your time because the daily commute is extremely long.</p> <h3>Retiring Early</h3> <p>If you still choose to work like everybody else who absolutely needs every penny of their paychecks, you can actually retire much earlier than conventional wisdom dictates. I know plenty of frugal people who retired in their 50s even though they never earned a high income. When you spend less, your need to accumulate a really high nest egg reduces too.</p> <h3>Finding a Job You Love</h3> <p>If you love what you do, you won't feel like you are working a day of your life. Yet, too many people work at jobs they hate because they need the income to keep coming in. Funny how most people actually can't stop themselves from buying even though the mortgages, car loans, and credit card bills are like chains that link their lives to everything they find miserable.</p> <h3>Getting Better Raises</h3> <p>Unless you've been living in a cave (or have so much money that you have your assistant carry your wallet and pay for everything), you know that prices of just about everything have gone up. Fortunately, not all is bad in regards to inflation. People who spend less than they earn are have an easier time adjusting to the new prices because even though their companies' raises might be smaller than the inflation rate of goods, these people are more likely to have the increases to their cost of living fully covered by their raises.</p> <p>Here's an example. Let say you make $50,000 dollars and get a 2% inflation adjustment this year, giving you a $1,000 raise. If you only spend $20,000 a year, and a 2% increase on $50,000 is $1,000, it's like you have a 5% increase on what you can spend.</p> <h3>Buying When You Want To</h3> <p>Before you know it, living below your means will equate to having a small cash reserve of your own built up, giving you the power to buy the items that you want, when you want. And if you are like many people out there, the urge to buy immediately might actually dissipate because you know that you can make these purchases at anytime, even if there is a coupon that urges you to buy now. Furthermore, once you skip a few purchases, you will probably find that most of all those <a href="http://www.wisebread.com/impulse-shopping-a-controllable-handicap">impulse buys</a> are really just unnecessary to begin with, saving you even more money.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/david-ning">David Ning</a> of <a href="http://www.wisebread.com/5-dreams-you-wont-achieve-unless-you-live-below-your-means">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-buy-nothing-lifestyle-lessons-from-a-frugal-experiment">The Buy-Nothing Lifestyle: Lessons from a Frugal Experiment</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-resistance-bands">The 5 Best Resistance Bands</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-5-best-exercise-mats">The 5 Best Exercise Mats</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-americans-spent-their-money-in-the-1950s">This Is How Americans Spent Their Money in the 1950s</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/25-thoughtful-and-frugal-personalized-gift-ideas">25 Thoughtful and Frugal Personalized Gift Ideas</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Lifestyle Shopping fulfilling dreams inflation live below your means spending less Wed, 20 Jul 2011 10:36:09 +0000 David Ning 627352 at http://www.wisebread.com Best Money Tips: Beat Food Price Inflation http://www.wisebread.com/best-money-tips-beat-food-price-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-beat-food-price-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4203241920_4e85191b44.jpg" alt="Beat Food Price Inflation" title="Beat Food Price Inflation" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found some awesome articles on ways to beat food price inflation, personal finance basics for new grads, and how to sell your home without a realtor.</p> <h2>Top 5 Articles</h2> <p><a href="http://notmadeofmoney.com/blog/2011/05/frugal-waysbeat-food-inflation.html">5 Frugal Ways to Beat Food Price Inflation</a> &mdash; Don't let food price inflation drain your wallet. Instead, stock up when there is a sale. [Not Made of Money]</p> <p><a href="http://www.kiplinger.com/columns/ask/archive/7-personal-finance-basics-for-new-grads.html">7 Personal Finance Basics for New Grads</a> &mdash; If you are a new grad, be sure to buy renters insurance. [Kiplinger]</p> <p><a href="http://moneysmartlife.com/sell-your-house-without-a-realtor/">How to Sell Your House Without a Realtor</a> &mdash; Want to sell your house without using a realtor? Be sure to know about all the paperwork that goes along with selling your home. [Money Smart Life]</p> <p><a href="http://www.moolanomy.com/4768/5-surprising-items-you-should-buy-secondhand-egbirken/">5 Surprising Items You Should Buy Secondhand</a> &mdash; When buying musical instruments, be sure to buy used. [Moolanomy]</p> <p><a href="http://www.thedigeratilife.com/blog/how-to-avoid-foreclosure-keep-your-house/">How to Avoid Foreclosure: Keep Your House in Troubled Times</a> &mdash; Avoid foreclosure by evaluating your resources on foreclosure prevention. [The Digerati Life]</p> <h2>Other Essential Reading</h2> <p><a href="http://www.lifehack.org/articles/lifehack/26-tips-to-keep-your-computer-up-and-functioning.html">26 Tips to Keep Your Computer Up and Functioning</a> &mdash; Keep your computer in good working order by scanning for viruses on a weekly basis. [Lifehack]</p> <p><a href="http://financialhighway.com/6-nature-craft-ideas-for-grownups/">6 Nature Craft Ideas for Grownups</a> &mdash; Get creative using nature by pressing flowers. [Financial Highway]</p> <p><a href="http://www.getrichslowly.org/blog/2011/05/05/pack-smart-to-save-money/">Pack Smart to Save Money</a> &mdash; When traveling, try rolling your clothes to make space in your suitcase and save money. [Get Rich Slowly]</p> <p><a href="http://management.fortune.cnn.com/2011/05/06/5-ways-to-manage-your-autocratic-boss/?section=money_pf&amp;utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+rss%2Fmoney_pf+%28Personal+Finance%29">5 Ways to Manage Your Autocratic Boss</a> &mdash; Manage your overly bossy boss by refusing to be a &quot;yes man.&quot; [Fortune]</p> <p><a href="http://fitzvillafuerte.com/4-reasons-why-your-business-will-fail-before-you-even-get-started.html?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+ReadyToBeRich+%28Ready+To+Be+Rich%29">4 Reasons Why Your Business Will Fail Before You Even Get Started</a> &mdash; Make sure your new business doesn't fail before it gets started by having good time management skills. [Ready To Be Rich]</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> of <a href="http://www.wisebread.com/best-money-tips-beat-food-price-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/20-easy-ways-to-stretch-your-grocery-dollars">20 Easy Ways to Stretch Your Grocery Dollars</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/flashback-friday-106-delicious-lunches-that-will-make-you-excited-to-brown-bag-it">Flashback Friday: 106 Delicious Lunches That Will Make You Excited to Brown-Bag It</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/cooking-without-crepe-pans-and-other-expensive-kitchen-tools">Cooking Without Crepe Pans and Other Expensive Kitchen Tools</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/peanut-butter-the-poor-man-s-protein">Peanut Butter: The Poor Man’s Protein</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-sleek-marketing-ploys-aimed-at-getting-more-of-your-grocery-money">5 Sleek Marketing Ploys Aimed at Getting More of Your Grocery Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Food and Drink best money tips Food inflation Mon, 09 May 2011 10:00:12 +0000 Ashley Jacobs 538300 at http://www.wisebread.com While Waiting for Rates: I-Bonds http://www.wisebread.com/while-waiting-for-rates-i-bonds <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/while-waiting-for-rates-i-bonds" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/savings-bonds-large.jpg" alt="Savings bonds" title="Savings Bonds" class="imagecache imagecache-250w" width="250" height="164" /></a> </div> </div> </div> <p>Your short-term cash in a savings account or money fund isn't earning much yield. You could earn a bit more by locking your money up for a longer term, but that could be costly if your money is still locked-in when rates eventually do rise&mdash;and <em>especially</em> costly if inflation goes up.</p> <p>If only there were some instrument that paid a reasonable return, provided some inflation protection, and still gave you access to your money if rates went up.</p> <p>As you'll have guessed from the title, there is: the series-I savings bond.</p> <p>The I-Bond provides excellent inflation protection, by paying a rate that consists of a portion that's fixed for the life of the bond, plus a portion that changes every six months based on recent inflation. A bond you buy right now will only pay the inflation rate, because the fixed portion is zero. However, there'll be a new fixed rate announced May 1st.</p> <p>The I-Bond does this while providing considerable flexibility for you to decide how long you want to leave your money in. If it's providing a good return, you can choose to leave your money in for 30 years. Alternatively, you can take your money out any time after one year has passed. If it's been less than 5 years, you forfeit the last three months interest payments&mdash;but since rates are so low, that's not much of a penalty.</p> <h2>Four Scenarios</h2> <p>There are four scenarios that you need to consider: interest rates might stay low or they might go up; at the same time the inflation rate might stay low or it might go up. Let's look at each of those in turn, and see how the I-Bond works in that scenario.</p> <h3>Rates stay low, inflation stays low</h3> <p>This is basically the situation we've been in since the financial crisis began. The I-Bond is an adequate investment, keeping you even with inflation.</p> <p>Your best move: <strong>Hold your bonds</strong>. With low rates, you probably can't do better elsewhere anyway.</p> <h3>Rates go up, inflation stays low</h3> <p>This seems like the least likely scenario, but if this is what happens, you'd be okay.</p> <p>Your best move<strong>:</strong> <strong>Cash in your bonds</strong> and then invest in something paying the new higher rates. You'll have to give up three month's interest&mdash;but since inflation is low, that wouldn't be much.</p> <h3>Rates stay low, inflation goes up</h3> <p>This is generally the worst situation for the saver, but the I-Bond does a reasonably good job of protecting you, and you can't do much better elsewhere anyway. (People who locked in their money at low rates without inflation protection, on the other hand, are screwed.)</p> <p>Your best move: <strong>Hold your bonds</strong> and keep up with inflation.</p> <h3>Both interest rates and inflation go up</h3> <p>In this scenario you're protected from the inflation, but you're not earning the new higher rates.</p> <p>Your best move: <strong>Cash in your bonds</strong>. You'll pay a penalty, but it will be small (as long as you do it early, before you'd earned much of the new, higher inflation adjustment). Then reinvest at the higher rates.</p> <h2>Take Your Time</h2> <p>Probably the best move overall is to adopt this strategy gradually. For one thing, since you can't get your money out for the first year, you don't want to put in any money that you might need during that time. In any case, you're only allowed to buy $5000 worth of savings bonds per year anyway.</p> <p>If you make a modest investment into I-Bonds each year, all but the most recent batch will be available to cash in anytime that's the right move. And, once five years have passed, some of them will be available to cash in with no penalty.</p> <p>In fact, once you reach that point, you can start thinking of your savings bonds as part of your <a href="http://www.wisebread.com/figuring-the-size-of-your-emergency-fund ">emergency fund</a>. They can be cashed in at any bank, so they're <a href="http://www.wisebread.com/savings-bonds-as-interest-earning-travelers-checks ">almost like cash</a>. (But they're more secure than cash, because if they're lost, stolen, or destroyed, you can get them replaced.)</p> <p>If you want to invest larger amounts, consider TIPS. They're currently paying higher rates. (However, they don't have the feature of allowing you to cash them in early.) I wrote an article <a href="http://www.wisebread.com/tips-and-i-bonds ">comparing TIPS and I-Bonds</a> a while ago.</p> <p>See the <a href="http://www.savingsbonds.gov/indiv/research/indepth/ibonds/res_ibonds.htm ">Treasury's site on I-Bonds</a> for all the details on current rates, how the rate is calculated, how to buy them, etc.</p> <p>It's entirely possible that interest rates will stay low. In fact, the Fed is pretty much promising to keep rates low for &quot;an extended period.&quot; That's assumed to mean at least six months, but it could be much longer than that. I-Bonds are a reasonable choice while you're waiting&mdash;and after May 1st, depending on what the Treasury sets as the new fixed rate, they might get better.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/tips-and-i-bonds">TIPS and I-Bonds</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/new-rate-set-for-series-i-savings-bonds">New rate set for series I savings bonds</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">7 Cool Things Bonds Tell You About the Economy</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/i-bond-rates-go-to-zero">I Bond rates go to zero</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-let-low-interest-rates-make-you-stupid">Don&#039;t let low interest rates make you stupid</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment i-bonds inflation inflation rate interest interest rates savings bonds Mon, 28 Feb 2011 13:00:09 +0000 Philip Brewer 496997 at http://www.wisebread.com