Don’t let debt be the elephant in your relationship.
Most of us have had to deal with debt at some point in our lives, yet it still seems to be one of those taboo subjects no one wants to talk about – whether with friends, family or romantic partners. All the while, it may be more common for couples today to enter into relationships with debt, from student loans, credit cards or loans for large purchases like cars or homes. Whatever each party’s situation may be, being up front early on can help you avoid unnecessary financial and personal conflict down the road.
Debt is a four-letter word
Financial stress and disagreements have long been cited as leading causes of tension in relationships. Wealth is a highly personal matter touching all facets of our lives, so it’s not hard to understand why differences could hurt a relationship. Establishing an open line of communication when it comes to managing wealth is important – not only for your financial well-being – but for your relationship, too.
The airing of (financial) grievances
Especially with a spouse or romantic partner, being open with each other about your financial histories and debt – including past mistakes – is crucial to your combined long-term success and a comfortable retirement. Not doing so could lead to a variety of complications down the road including bad credit, trouble getting a loan or a less-than-ideal retirement.
Beyond being forthcoming about your financial standing, it’s also worth noting that most of us have different ideas of what is normal or acceptable in terms of how we manage our finances and debt or have different outlooks on what the future should hold. For example, while one partner may be comfortable renting an apartment for several years, another may be eager to become a homeowner. If one of you is carrying a lot of credit card or other debt, it could be more difficult to get a loan for such a purchase.
Get in the habit of checking in on your finances and goals with regular money “dates.” (Consider ordering from your favorite pizza place to make it more fun.)
That being said, don’t forget that not all debt is necessarily “bad” debt. While credit card debt typically comes with a high-interest rate and should be paid off as soon as possible, other loans including student, car or home may have lower interest rates and can even improve your credit score as long as you make regular payments. In those cases – rather than trying to pay them off as soon as possible – it may make more sense to take more time to ensure you’re able to keep investing and reaping returns. Taking a coordinated approach to your finances while in a relationship truly relies on having an accurate understanding of what your entire financial picture looks like – debt and all.
As women tend to live longer than men, there’s a good chance they will be managing finances on their own at some point – giving you both more reason to coordinate efforts now.
Sharing your wealth (of knowledge)
As a role model for your children, you’re looked to for guidance on many things – money included. Talk to your children about debt, sharing your own experiences and history. Remind them that carrying too much can affect their chances of getting a loan, perhaps for their first home.
The good thing about having a partner who is on the same page financially is that you benefit from a support system and accountability partner. Just as many people have a gym buddy to help encourage them to stick with an exercise regimen, having someone who understands your financial goals – and weaknesses – can help you stay on your path toward a bright financial future.
- Schedule regular money dates.
- Together, review your comprehensive financial situation including assets and liabilities.
- Reach out to your financial advisor to see how they can help you pursue your goals.
Sources: Psychology Today, Northwestern Mutual, Two Kids and a Budget
To be or not to be – in debt
Weigh these factors first when considering when to borrow
Life’s long and winding road generally includes plenty of side trips on the way to a comfortable retirement. There may be homes to buy, children to raise and educate, careers to pursue, a vacation here and there.
When done strategically, borrowing can help you address those needs – like purchasing a home – without derailing long-term goals, such as a comfortable retirement. The key is to consider how the loan will work within your overall financial picture, taking into account each factor including the interest, duration and regular payments.
For example, while you may be itching to pay off a low-interest loan you have on your home, doing so could mean using investments that are likely to appreciate over time, if left untouched. Given that returns on investments may be higher than the interest on a loan, keeping your assets invested may give you a bigger head start on a comfortable retirement down the road. Conversely, high-interest debt such as credit card debt should be paid off as soon as possible.
As you make your decisions, think about:
- How much debt you’re willing to take on
- Whether you prefer to sell assets or borrow
- The anticipated rate of return on your investments
- The anticipated cost of borrowing
- If it makes sense to borrow in the name of a trust or business
- What loan structure makes the most sense: traditional, adjustable-rate or collateral-based loan, among others
- Whether you prefer to use securities, your home or some other asset as collateral
- Tapping into the equity in your house, especially if rates are attractive
- The tax ramifications of a loan compared to selling investments
- How quickly you need the money
- How long you’ll need the loan, particularly a mortgage
- How you’ll pay off a loan and when
Call on your financial advisor for guidance as you weigh your options and to help you to map out a plan to strategically manage your debt while pursuing your long-term goals.
- Consider how your short- and long-term goals could be affected by debt.
- Weigh your goals against each of these factors.
- Work with your advisor to determine if debt can be a useful tool to address your needs.
Sources: Barron’s; longtermcarelink.com; transamerica.com; MIT AgeLab
Debunking Social Security myths
Shine some light on these common misconceptions to help get the most from your hard-earned benefits
Myth #1 – Social Security won’t be around
FACT – Social Security is replenished by working Americans, interest on its bonds and taxes on some retiree benefits. Should the existing surplus be depleted, future retirees may be paid a portion of the benefits promised, but not zero.
Myth #2 – Social Security is all you need
FACT – While benefits are adjusted for cost of living increases, they’re intended to supplement, not replace, retirement savings. That’s why it’s important to maximize your retirement savings for as long as possible.
Myth #3 – Always file as early as possible
FACT – Filing before your full retirement age (FRA) will begin benefits sooner but reduce their amount, which may not be optimal. Higher-earning spouses often delay benefits to ensure a higher payout for their widow or widower, who would be eligible for 100% of their benefit.
Myth #4 – Always file as late as possible
FACT – Waiting past FRA to file often makes the most sense financially. But some conditions warrant filing early, particularly if you need the extra income, have health concerns or want the payments during your younger years.
Myth #5 – No work experience, no benefits
FACT – Those without 40 quarters of work history can receive half of what a spouse or ex-spouse would receive (if you were married for over 10 years and haven’t remarried). Surviving spouses and exes may also be eligible for full benefits on their spouse’s record.
Myth #6 – Never work after filing
FACT – If you file early and continue to work, your benefits will be reduced based on your earnings. But those benefits are simply delayed; at FRA, you’ll receive increased payments to make up the difference.
Myth #7 – Rely solely on advice from friends and family
FACT – Advice from non-professionals may not maximize benefits. Speak with your financial advisor and accountant to help determine your best strategy.
Sources: ssa.gov; investopedia.com; forbes.com; thefiscaltimes.com; marketwatch.com; cnnmoney.com
Material prepared by Raymond James for use by its advisors. Raymond James is not affiliated with any companies mentioned in this material.
Everyone loves a celebration, and July is certainly a month for that! There’s nothing better than the festivities surrounding the Fourth of July; the cookouts, fireworks and family gatherings are a great respite from our busy lives. Although it’s primarily seen as the month of American pride and independence, July is a veritable cornucopia of holiday opportunities. Along with some random ones (I’m looking at you, Take Your Houseplants for a Walk Day), there are a ton of national observances this month that are centered on food.
So, if the foodie in you is looking for new reasons to celebrate this summer, know that July is also national:
Eggplant and Lettuce Month
Nectarine and Garlic Month
Lasagna Awareness Month
Mango and Melon Month
Hot Dog Month
Baked Beans Month
Ice Cream Month
With such an eclectic list of scrumptious observances to celebrate, there’s no reason for us to have a limited view of the menu this month has to offer. This year we should try to broaden our culinary horizons and indulge in some of the diverse food July has the honor of representing. Besides, why should we stop eating great meals and celebrating with our families when the Fourth of July festivities are over?
Read the weekly economic commentary from Chief Economist Scott Brown.
The June Employment Report was about as much as stock market participants could have hoped for. Nonfarm payrolls rose more than expected, helping to offset fears that the economy is weakening. However, job growth was not too strong and wage inflation remained moderate, reducing fears that the Fed might be forced to raise short-term interest rates more aggressively. If this moderate-growth backdrop sounds familiar, that’s because we’ve lived with it for some time now, and that’s been a relatively good environment for investors.
Nonfarm payrolls rose by 222,000 in June, more than anticipated, with a net revision of +47,000 to April and May. The June surprise was partly due to a 35,000 gain in government jobs (mostly local, and surprisingly, not education). Note that, prior to seasonal adjustment, the economy lost 952,000 education jobs (public and private-sector) in June and added 1.551 million non-education jobs – roughly in line with what we saw in June 2016. Private-sector (adjusted) payrolls rose by 187,000, not far from the median forecast (+172,000), leaving the first-half average at +171,000 (vs. a +170,000 average for all of 2016). Retail payrolls rose by a lackluster 8,100, but that followed four consecutive months of declines (up 0.1% y/y).
We need less than 100,000 payrolls gains per month to be consistent with the growth in the working-age population. We can run higher than that now because we are still working off the slack created during the Great Recession. How much slack remains in the job market is difficult to determine, as demographic changes (an aging population) have reduced labor force participation. As the job market picks up, we normally see individuals come back into the labor force, but that ought to be limited (again, due to the demographics). The degree of under employment is also difficult to gauge. Involuntary part-time unemployment has been trending lower.
Tighter job market conditions should eventually lead to higher wage inflation. Average hourly earnings are now trending at 2.5% year-over-year – good, but not especially strong, and somewhat surprising given the low unemployment rate (4.4%). That could be due to better job growth in lower-paying industries. The AHE figure is subject to shifts in the composition of jobs, but the Employment Cost Index (2Q data due July 28) is not. As expected, 2Q17-over-2Q16 wage growth is elevated in the information sector and weak in the retail sector, but mixed otherwise (what’s up with leisure and hospitality?).
There are a number of possible explanations for why wage growth has been limited. Firms continue to emphasize cost containment and aren’t giving away wage hikes much beyond consumer price inflation, unless the employee has one foot out the door. Workers may be accepting lower salary increases to keep their health insurance. The Fed believe that wage growth may have been held down by the weak pace of productivity growth. Whatever the case, the near-term economic backdrop remains favorable: continued growth, but not too strong.
The opinions offered by Dr. Brown should be considered a part of your overall decision-making process. For more information about this report – to discuss how this outlook may affect your personal situation and/or to learn how this insight may be incorporated into your investment strategy – please contact your financial advisor or use the convenient Office Locator to find our office(s) nearest you today.
All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates (RJA) at this date and are subject to change. Information has been obtained from sources considered reliable, but we do not guarantee that the foregoing report is accurate or complete. Other departments of RJA may have information which is not available to the Research Department about companies mentioned in this report. RJA or its affiliates may execute transactions in the securities mentioned in this report which may not be consistent with the report’s conclusions. RJA may perform investment banking or other services for, or solicit investment banking business from, any company mentioned in this report. For institutional clients of the European Economic Area (EEA): This document (and any attachments or exhibits hereto) is intended only for EEA Institutional Clients or others to whom it may lawfully be submitted. There is no assurance that any of the trends mentioned will continue in the future. Past performance is not indicative of future results.
Domestic, international and emerging markets equity posted positive returns in the second quarter of 2017 Two major U.S. stock indices closed at new highs in June, continuing the new-high trend that began after the presidential election in November 2016. On June 2, the NASDAQ topped 6,300. And on June 19, the Dow Jones Industrial Average closed at 21,528.99.
The Federal Open Market Committee raised its short-term interest rate 0.25% in June, as it did in March, raising the target range to 1.0% – 1.25%. The yield curve has flattened, but is a long way from inversion, Raymond James Senior Fixed Income Strategist Doug Drabik said.
Internationally, the United Kingdom’s general election failed to provide the incumbent Conservative party with the mandate it sought, adding uncertainty to the UK’s withdrawal from the European Union in the early stages of negotiations. In France, the election of a pro-Europe president sparked hope of Parliament-led reform.