The U.S. unemployment rate for December 2014 was 5.6 percent, the lowest since June of 2008, according to the Bureau of Labor Statistics. Hiring has also been strong for the past several months, and gas prices remain at their lowest levels since 2009.
Current economic conditions are helping Americans recover from the damage suffered during the Great Recession and pad their nest eggs for the future. Granted, the Federal Reserve ceased its quantitative easing program at the end of 2014, which has many economists predicting a major market correction as a result sometime this year. But as it stands right now, the economy is the healthiest it’s been in almost a decade. Here are three tips to help you take advantage of it:
Make a Plan, Stick to It
The easiest way to get into financial trouble is living beyond your means. The general rule of thumb is that housing costs—including rent or mortgage payments, taxes and insurance—should not exceed 28 percent of your net income. Simply put, it’s time to downsize if you’re paying more than that.
Your total monthly fixed costs (including housing) should not exceed 50 percent of your net income, according to Learnvest. Utilities, car payments, phone and other bills that don’t fluctuate much month-to-month are also included. Financial goals, including retirement savings and emergency funds, should account for 25 percent of your net pay.
The rest is for entertainment, gasoline and hobbies. Those who follow a guide like this will always have a good idea of where they stand financially and if changes are needed, where to make them.
Pump Brakes on American Dream
Home prices were up 5.5 percent from November 2013 to November 2014, CoreLogic reports. That represents the 33rd consecutive month of gains from the previous respective years. The Fed, again, is no longer purchasing billions of dollars in mortgage-backed securities every month, as it had done since September 2012—thus, there’s no artificial inflation of the housing market.
The gains are an obvious bubble that is certain to correct itself at some point late this year or early next year. For more perspective, gas prices plunged from $3.60 in September 2008 to around $1.60 that December, when the previous housing bubble burst. Gas prices similarly plunged in 2014 from September to December. Now is a better time to sell than buy a home, particularly for single individuals with no children. Inquire with a few realtors to see how much your home is worth in today’s market, and if selling makes good financial sense.
Those adamant about buying a home should stick to Chicago, Cleveland, Phoenix, and other markets that grew by 2 percent or less in 2014. That way you have more of an error margin if in fact there is a major correction. You’ll stand to lose much less than if you buy in a market like Dallas, Denver Miami, or San Francisco; these cities all saw gains exceeding 7 percent for 2014. It’s best to wait until next year to buy a home after the markets settle down.
Protect Your Wealth
Selling your home could mean a windfall of cash. Almost every Americans should have extra money now anyway, due to low gas prices. This extra cash should be invested in safe yet potentially profitable commodities that protect your wealth.
Precious metals have been a reliable hedge against inflation since humans began using paper money. Historically, the prices of gold and silver have always gone up when the value of the dollar goes down or the money supply is contracted. Since Jan. 1, with no more QE, the price of gold has already risen 7.5 percent. Silver is doing even better, up 9.4 percent in that same time period. Always invest in gold and silver bullion (coins and bars) as opposed to ETFs (stocks). The latter are prone to fiat manipulation similarly to dollars, while bullion is a tangible asset that holds its value.
Those without a bankroll to purchase precious metals should consider other ways to raise the necessary cash. If you receive regular payments from an annuity or structured settlement, you may be able to sell your future payments to a company like J.G. Wentworth for a lump sum of cash now. You could also create more money on your paychecks by claiming fewer exemptions now and changing it back later in the year to make up the difference.
Discipline and responsibility are the keys to financial freedom. Always take care of needs before wants, and everything else will work itself out.
