Rising Interest Rates and Your Spending Plan

In its ongoing fight against inflation, the Federal Reserve again hiked interest rates earlier this month to a range of 3.75 – 4.00%. This widely anticipated move continues the year-long trend of rate hikes, and it is important to understand how these moves affect your household spending plan.

The specific rate mentioned above – the Federal Funds rate – technically does not affect consumers directly. When the target range is increased, the costs for banks participating in overnight market activities increases, which will then likely be passed along in the form of higher rates on consumer debt products.

These behind-the-scenes transactions are ultimately responsible for the rising costs of credit cards, mortgages, and other loans. On a positive note, consumers can also take advantage of higher rates on treasuries, money market funds, CDs, and other short-term saving instruments. For the sake of space, I will go over two of the most common consumer rates: credit cards and mortgages.

  1. Credit Cards – most credit cards utilize an adjustable rate, which is more susceptible to immediate changes in the market. Individuals carrying a balance from month-to-month will experience higher borrowing costs, and extend their payoff timeline, especially if they are making the same monthly payment. You can likely find your current rate on a monthly statement.
  2. Mortgages – on the flip side, most mortgages fall under the fixed-rate category. While new homebuyers, and those with adjustable-rate mortgages (ARMs), are facing higher borrowing costs, those with an existing fixed-rate mortgage are not impacted.

Unfortunately, consumers cannot control effective interest rates; however, you can at least minimize the impact on your spending plan. Forgoing a major purchase, shopping around for the best rates, improving your credit, and making extra debt payments are all potential strategies for protecting your personal finances during a rising interest rate environment. Human Sciences Specialists, with a focus in Financial Health and Wellbeing, are also here to help if you find yourself in a tight spot with your spending plan!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Sports Betting and Gambling Resources

I will admit it – I have been spending a decent amount of time watching football recently. And who can blame me? There have been entertaining and surprising games every weekend, but one of the biggest surprises for me didn’t take place on the field. It happened during the commercial breaks – over, and over, and over. Another admission…I do not watch a lot of traditional television. So, it’s entirely possible I am just missing the massive amount of sports betting commercials on tv. It’s so prevalent that online betting is even included in the pregame shows with the commentators.

Sports betting, in it’s current form, really dates back to 2018 and a decision made by the Supreme Court. Since then, it has been adopted in different ways, shapes, and forms by many states, including Iowa. It is probably too early to understand the impact; however, there are some early results and plenty of resources available for those experiencing a challenge with sports betting, and gambling, in general.

The Iowa Racing and Gaming Commission provides oversight for the state’s gambling activities, while the Iowa Department of Public Health provides treatment and prevention services. Workers with an Employee Assistance Program (EAP) may have access to counseling services for those experiencing a challenge with gambling. Iowa State University Extension and Outreach does not cover gambling-specific topics, but we do have a wide variety of financial education topics for Iowans in need!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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The PSLF Limited Waiver Explained

The Public Service Loan Forgiveness (PSLF) Program was established in 2007 to help non-profit and/or government workers with their federal student loan balances. Under the original guidelines, only those with Direct Student Loans – Subsidized, Unsubsidized, PLUS, and Consolidated – would receive credit toward forgiveness. Limitations were also placed on the loan payments themselves. Payments must have been made on-time, in-full, and within the correct repayment plan.

  1. Allowing past payments to Perkins and Family Federal Education Loans (FFEL) to count toward forgiveness – these types of loans were ineligible under the original PSLF Program.
  2. Allowing borrowers to consolidate their federal loans without losing eligibility for forgiveness – previously, borrowers who consolidated individual federal loans (Direct or non-Direct) to a Direct Consolidation Loan would have to restart their eligible payment clock.
  3. Allowing partial payments to count – payments that were made for less than the monthly billed amount would not count toward PSLF.

These changes have allowed many additional borrowers to become eligible for forgiveness under PSLF, and the full list of changes can be viewed on the PSLF Limited Waiver Fact Sheet.

As of now, the October 31, 2022 deadline has not been extended (please note that this differs from the recently announced administrative forbearance extension ending on December 31, 2022), so make sure to contact your lender if you believe you are eligible for forgiveness! You may also contact a Family Wellbeing Specialist, with a focus on Family Finance (https://www.extension.iastate.edu/humansciences/finance) for additional assistance with navigating your student loans.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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VA Benefits Update and Resources

While the Inflation Reduction Act is currently being signed into law, another (very) recently passed bill also has the potential to impact millions of Americans – the Sergeant First Class Heath Robinson Honoring our Promise to Address Comprehensive Toxics – or PACT Act. This bipartisan-supported legislation seeks to expand VA healthcare and disability benefits for Veterans, who served over a period of several decades, and were exposed to a variety of hazardous toxins such as those emitted by burn pits, the use of Agent Orange, and radiation emitted from nuclear weapon testing. This is a long-awaited result for Gulf War/post-9/11 and Vietnam-era Veterans.

The Department of Veteran Affairs created a new webpage, a PACT Act FAQ handout, and a Survivor Benefit handout to help spread the word; Veterans are also encouraged to use the excellent Veteran service resources that already exist:

  1. County Veterans Offices – every county in the state of Iowa has a designated Veteran Service Officer who can assist with VA Healthcare enrollment, disability claims, and many other issues.
  2. VA Resource Webpage – this Dept. of Veteran Affairs webpage is dedicated to providing support on all VA-related topics, including an email subscription request link.
  3. Military OneSource – many Veterans who are serving the remainder of their contract on Inactive Ready Reserve (IRR) are still eligible for the many confidential, non-medical support services they received on active duty or active reserve status.
  4. Iowa State University Extension and Outreach – programs such as Powerful Tools for Caregivers, Volunteer Income Tax Assistance (VITA), and 1:1 Financial Consultations are all available to Veterans, regardless of status.

Ryan Stuart is a U.S. Navy Veteran and previously served as a Personal Financial Counselor for the Iowa Army National Guard. You can schedule an appointment with him to discuss the Thrift Savings Plan, Blended Retirement System, VA Benefits, and more!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Making the Switch to Self-Employment

The thought of self-employment can be alluring – being your own boss, flexible hours, creative freedom – but in reality, the decision is much more complex. As an employee, you may take for granted the tasks that are handled by your employer, such as setting the daily schedule, collecting taxes, and providing benefits. Even office supplies, equipment, and access to clients are likely in place before an employee starts her/his position. A self-employed individual must handle all that on their own.

This is not to say that self-employment is out of reach, but being prepared to make the switch is an absolute necessity. If you are interested in taking that leap, then the following resources will help you on your way!

Federal Resources

Perhaps the most significant difference between traditional employment and self-employment is with taxes and the IRS. The ‘when’, ‘how’, and ‘why’ of taxes are very different for individuals and businesses – far too different to cover in detail here – but these tools are a great start:

State & Local Resources

Luckily, you are not on your own when it comes to planning your small business. Iowa has several Small Business Development Centers located throughout the state. The services are free and designed to help small business owners with a number of topics:

In addition to the IRS, and Iowa’s Small Business Development Centers, Iowa State University Extension and Outreach can also assist with your self-employment plan. Our Community and Economic Development Specialists have several programs focused on small businesses, and designated Human Sciences, Family Wellbeing Specialists can help with creating a household budget – note: this is step #1 in the “Starting a Business in Iowa Checklist”!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Advisors, Counselors, and Planners…Oh My!

One of my least favorite tasks as a homeowner is vetting and hiring contractors for a project. Like many others, I start out by asking friends in the area. I feel pretty good when I receive consistent opinions, but when the opinions differ, I reluctantly turn to Google; hoping to find reliable and legitimate information to help with my decision.

Unfortunately, many folks face a similar dilemma when trying to choose the right financial professional. We often receive suggestions from friends and family; however, many financial professionals have specific focus areas or only offer certain services, making the decision very personal. The following will briefly summarize each type of financial professional, and hopefully, help to narrow down your options.

  • Financial Advisors – generally speaking, Financial Advisors are found locally, work at for-profit financial institutions, and are licensed to buy/sell financial products (i.e., stocks, mutual funds, insurance, etc.). Financial advisors can be an option for individuals who prefer a little extra assistance with their finances, and they can be vetted here.
  • Financial Counselors – Financial Counselors often work at universities, non-profit organizations, and/or government agencies. Financial counselors tend to focus on financial education and behavioral changes, empowering the client to make her/his own informed decisions. Accredited Financial Counselors can be found here.
  • Financial Planners – Financial Planners typically bring the highest level of experience and education to the table. They often have experience as a Financial Advisor/Counselor, may still work for a larger financial institution, or an independent firm, and typically offer the most comprehensive list of services. Certified Financial Planners can be found and vetted here.

One final note..…financial professionals can hold dual-certifications, specialize in numerous areas of personal finance, and have varying compensation structures (i.e., commission-based, fee-only, salaried, or charge asset under management [AUM] fees) – adding to the complexity – but many offer free consultations to see if the service they provide is a good fit. Our Extension Financial Educators also offer free, confidential, and unbiased consultations!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Thinking About Retiring Early? Things to Consider…Part 2

Welcome back for the second part of “Thinking About Retiring Early? Things to Consider”. Last month’s post focused on what happens to your income when retiring prior to the more common retirement ages of 55, 59 ½, 62, etc. This month will focus on how expenses are impacted when you decide to retire before you reach one of the ages mentioned above.

Historically speaking, “average” retirees may need approximately 80% of their pre-retirement income to maintain their current standard of living. The rationale behind this theory is that you will no longer have to pay for things like commuting, work attire, payroll taxes, certain employer-sponsored benefits, etc. While this may seem like a plus, things get a little tricky when you are looking to retire decades earlier than normal. Many retirees already have a difficult time stretching their funds over the course of a 20-year retirement (depending on your anticipated life expectancy) and tacking on another 20 years will only add to the complexity. This is primarily due to the additional estimation required in the retirement planning process, but also because of healthcare.

Managing the cost of healthcare

According to recent statistics from the Centers for Medicare and Medicaid Services, National Health Expenditures grew nearly 10%, or approximately $12,500 per person, in 2020 (partially due to the Covid-19 pandemic), and are projected to grow at an average annual rate of 5.4%, which outpaces inflation in most years. The problem for early retirees is that some of those costs are currently subsidized through their employer and/or the federal government; they will likely lose that subsidy with an early retirement. One option is the Healthcare Marketplace; however, eligibility for subsidies is impacted by income. The Health Insurance Marketplace Subsidy Calculator from the Kaiser Family Foundation can help to estimate your premium costs.

Whether you want to retire early or not, please remember that the decision is very personal, specific to your individual needs, and should not be based upon general guidance or the decisions of others. To learn more about the basics, visit our website at https://www.extension.iastate.edu/humansciences/money.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Thinking About Retiring Early? Things to Consider…Part 1

This is not a new phenomenon, but the Financial Independence, Retire Early (FIRE) Movement gained quite a bit of momentum over the past few years. As the pandemic raged on, many people started to question their quality of life, workplace satisfaction, and their connection to family, friends, and the outside world in general. For most of us, this was a normal reaction to an extremely stressful situation; however, a handful throughout society decided they had had enough and hit the road for greener pastures.

Depending on which article you read on the internet (there are hundreds!), this may sound like a reality anyone can achieve, but I noticed quite a few details were either left out or not applicable to the general population. In order to cover this topic in full, I decided to break it up into two posts – one focusing on income, and the other focusing on expenses – so if you are thinking about retiring early…read on!

Income…. Where will it come from now?

News flash – your cash flow will be significantly impacted by retiring early. Gone are the days of receiving a regular paycheck from an employer. So, how do people make it work when we think of the typical “early retirement” age as 59 ½ or 62 (for Social Security purposes)?

  1. For starters, it is a little-known fact that there are MANY ways to retire before the age of 59 ½ without being hit with the dreadful 10% tax penalty, but you must qualify for it.
  2. You may read that some FIRE-achievers received severance packages, inheritances, own rental properties, and/or save upwards of 75% of their income (primarily in taxable brokerage accounts).
  3. And most importantly, many continue to work. Unlike their previous career, however, they typically work part-time through the gig/freelance/app economy, and/or their new work finally enables them to follow a passion.

Come back next month for the discussion on expenses (hint: it has a lot to do with the cost of healthcare!).

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Are Annuities Good For Everyone?

After reading through previous blogs to help brainstorm for this week’s post, I found myself reflecting upon personal experiences that led me down the path to becoming a Financial Counselor. One such instance – that admittedly, I did not fully understand for several years after entering this profession – occurred when my father retired ten years ago.

He only had a small sum of money in his company’s 401(k). This was completely fine considering he also had a pension, Social Security, and little to no debt. In this situation, he received more than enough money from his “guaranteed” sources of income – the pension and Social Security – to cover his necessary living expenses and could use his 401(k) as a flexible source of income, if needed. This is ultimately what my mom did last year when she retired, but unfortunately, this is not what happened with him…

Like many families, my parents worked with an advisor at a local, for-profit financial institution. They ultimately decided to roll his 401(k) into a Traditional IRA that also included the following:

  • A deferred-annuity contract that allowed him to annuitize (turn the money into a lifetime stream of income) or pay a surrender fee if he later changed his mind – he did.
  • It offered a guaranteed 5.5% rate of return on the base amount of the rollover and a guaranteed death benefit; however, each of these “riders” cost 1.25%, which was deducted annually from his IRA balance.
  • The IRA balance was invested in four different mutual funds, all of which had an expense ratio over 1.0%.

Did he lose money because of this? Technically, no – last decade’s market return was quite impressive; however, those annual fees were costly for a financial product he never used. Am I judging my family, or their advisor’s decision? NO!! I was not a part of the conversation and do not know what factors played into it. My only goal here is to provide education on a very complex, and specific, financial product and how it should fit in to a retirement plan. You can also read this AARP article for a much more detailed summary on annuities.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Emergency Savings: How Much Do I Need?

Prior to the Covid-19 pandemic, approximately 30-50% of adults in the United States (depending on the study) would struggle when faced with an unexpected or emergency expense. While the percentage of affected adults improved with the arrival of COVID relief programs, recent data shows that the numbers may be trending back down toward pre-pandemic levels. The aggregate data will continue to show these fluctuations over time depending on the macroeconomy, significant policy changes, etc., so a more immediate question for consumers is:  How much do I need in my emergency savings account? $400…$1,000…3-6 months of expenses? The answer is not concrete and completely depends on your own personal situation, but here are some things to consider:

  1. How large is your household? – the necessary living expenses for a single individual will likely look much different than a household of four.
  2. Do you own a home or rent? – homeowners face the risk of repair costs, which increases their need for emergency savings. The recent derechos are a perfect example.
  3. What are your insurance deductibles? – this is an often-overlooked aspect of emergency savings. Auto insurance deductibles tend to be around $250 or $500, while health insurance and homeowner’s insurance deductibles could be in the thousands. A higher deductible provides lower premium costs, but does increase your need for emergency savings.
  4. How stable is your income? – are you self-employed or an independent contractor? Do you work in a high-turnover industry or face occasional government shutdowns? How likely you are to need those savings to make up for lost income should also factor into the amount saved.

This is not meant to be an exhaustive list, but rather a starting point for your emergency savings plan. For the DIY-ers, I encourage you to utilize PowerPay, Utah State University Extension’s free, online, personal finance tool to create your emergency savings plan; otherwise, you can contact your local Iowa State University Extension and Outreach Financial Educator for a free, confidential, 1:1 Financial Consultation!

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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