Money Management

There are two kinds of indicators to provide insight about the state of the economy. Discover why many experts believe the U.S. could be headed for a recession. 

The economy is a hot topic of discussion these days, with many wondering whether we are headed towards a recession. The last few years have seen an extended period of economic growth, but experts are warning that this could be coming to an end. So, are we headed for a recession? Here are some of the warning signs and indicators that are pointing towards a potential economic downturn.

Lagging vs. leading indicators

Economic indicators fall into two categories: leading and lagging. Lagging indicators, such as interest rates, the unemployment rate, and inflation rate serve as evidence of what has already happened within the economy. These can be compared to what you see in a car’s rear view mirror.

Leading indicators, on the other hand, are trends and patterns that precede economic shifts. They are used to predict the future performance of the economy, such as stock market trends and consumer confidence. They are similar to signs that you see on the road up ahead.

While lagging indicators provide insight into what has already occurred, leading indicators are often more useful for investors and policymakers alike because they provide insight into what may come in the future. Here are common leading indicators and what they are currently saying.

Yield curve inversion

One of the major indicators that experts consider when trying to predict a recession is the shape of the yield curve. The yield curve is a graph that shows the interest rates of bonds of different maturities.

In a normal yield curve, longer-term bonds have higher interest rates than shorter-term bonds. However, when the opposite happens, and shorter-term bonds have higher interest rates than longer-term bonds, this is called a yield curve inversion.

An inverted yield curve has virtually preceded every recession since 1950, making it a reliable signal that we could be headed for a downturn. The yield curve inverted in 2022 and has widened in 2023. As of July 6, 2023, the yield on the three-month Treasury bill was 5.46%, while the two-year Treasury note closed at 4.99%. By comparison, the yield on the much longer-term 10-year U.S. Treasury note was 4.05%.

According to the Federal Reserve, based on the yield curve alone, there is close to a 70% probability that the U.S. will enter a recession in the next 12 months.

Falling consumer confidence

Consumer confidence is another important indicator of economic health. When people are confident about the economy, they are more likely to spend money, which helps to stimulate growth.

However, when confidence falls, people tend to save more and spend less, which can slow down the economy. Consumer confidence has been decreasing steadily in recent months, with concerns about job security and the possibility of a recession being major factors.

According to the recent figures, consumer confidence has improved in June, reaching its highest level since January 2022. However, the expectations gauge continues to signal a recession over “the next 6 to 12 months.”

Manufacturing slowdown

The manufacturing sector is another area of concern, as there are signs of a slowdown in activity. Manufacturing is often seen as a bellwether for the economy because it tends to be sensitive to changes in demand.

This is measured through the Institute for Supply Management (ISM) Manufacturing Index. A slowdown in manufacturing can indicate that demand for goods is decreasing, which could lead to a broader economic contraction.

The ISM Manufacturing purchasing managers index (PMI) in the United States fell to 46.0 in June 2023, the lowest level since May 2020. In the past 11 recessions, the index has been between 42.1 and 66.2 the month before the recession started, with an average of 49.7.

Unfortunately, the economy has been below that average for the past eight months. The current level of 46.0 is not good news, as it is lower than nine of the last 12 recessions.

The S&P 500

As one of the world’s most important stock market indexes, the S&P 500 acts as a reliable leading indicator for the U.S. economy. This is due to its composition, which is made up of 500 of the largest publicly traded companies in the United States.

By tracking the movement of these companies’ stocks, the S&P 500 provides insight into the overall health of the U.S. economy. Investors and analysts alike often look to the S&P 500 for signals on future economic trends.

Year to date, the S&P has performed well, and is up 15.03%. However, it is still down about 8% from its all-time high of 4796.56 on Jan. 3, 2022. The S&P’s rally this year is largely due to tech companies riding the AI boom. Without these handful of stocks performing well, the S&P would be negative. The transportation, consumer discretionary, and finance industries are down YTD, signaling a possible recession.

While there is no crystal ball that can predict exactly when a recession will happen, the warning signs are there for those who are paying attention. A yield curve inversion, falling consumer confidence, and a manufacturing slowdown are all indicators that we could be headed for a recession. However, it’s important to remember that the economy is cyclical and that downturns are a natural part of the economic cycle. By keeping on top of your personal finances and staying informed about the state of the economy, you can weather any economic storm that may come your way.

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Are you overestimating your retirement savings? A new study shows you might be. Here’s what you can do to avoid this trap. 

Many Americans believe they’re on track to maintain their standard of living during their golden years. Unfortunately, more than one-quarter of U.S. households might be overestimating their retirement savings. This new research comes from the Center for Retirement Research at Boston College, and it reveals that the affluent are more likely to hold this mistaken belief. Here’s why.

Understanding the wealth illusion

Despite their wealth, the rich are often more likely to underestimate risk than middle and lower earners. This is due in part to a “wealth illusion” created by the booming stock and housing markets, which disproportionately benefit affluent households that own these financial assets.

Rich people tend to overestimate their retirement savings because they have a false sense of security regarding their investment portfolios. Wealthy individuals assume their investments will continue to grow in value at the same pace, even during times of economic downturn.

However, the truth is that even the most well-diversified portfolio is subject to market risk, which can wipe out years of savings. Market fluctuations can affect one’s retirement accounts, and by relying too heavily on current stock or property values, retirees may find themselves with less wealth than they thought.

High-income households may be incorrectly estimating their future retirement income based on the current state of their assets, which may not be sustainable in the long run.

Why the wealthy are prone to downplay risks

According to the study, 32% of high-income households are “not worried enough” about their retirement risk. This unfortunately leads them to believe they’ll be able to maintain their standard of living after they stop working when, in reality, they’re at risk of falling short.

In addition to the “wealth illusion,” a significant number of affluent households have a large amount of housing debt relative to their home equity, three times more than middle and lower earners. Social Security also replaces a smaller portion of annual income for wealthy households, meaning they must save more money to maintain their standard of living.

Another reason why rich people may overestimate their retirement savings is because they underestimate their expenses in retirement. While it’s true that many expenses, such as mortgage payments, may decrease in retirement, there are also many expenses that can increase, such as healthcare, travel, and their kids’ education costs.

So, while the rich may have a lot of money saved for retirement, they may not have accounted for all of the expenses they’ll face during their golden years.

Tips to avoid overestimating your retirement savings

Retirees and future retirees should take a proactive approach to manage their retirement savings. The first step is to review your financial plan and make adjustments if necessary.

Experts recommend spending no more than 3.5% to 4% of retirement savings per year, and this may need to be adjusted depending on one’s situation. Additionally, consider reducing discretionary spending, such as eating out or expensive car payments, to bolster retirement accounts.

For those who are approaching retirement but have inadequate savings, the best option is to create a plan to supplement income in retirement. This may involve working longer than anticipated or taking advantage of more significant Social Security benefits by delaying retirement until age 70.

Planning for medical costs and long-term healthcare is also essential, as these can be significant expenses in retirement. Another way to ensure you’re on track to meet your retirement savings goal is to use a retirement calculator tool. These tools take into account factors such as your current age, retirement age, and retirement income goal to help you calculate how much you’ll need to save to achieve your objective. This can help you get a better understanding of where you currently stand and what you need to do to stay on track.

It is essential to keep one’s retirement goals in perspective and not let the “wealth illusion” distract you from meeting your financial goals. Retirement is about more than just financial security — it’s about creating a life of fulfillment and purpose. Wealth may be a factor, but it is not the only consideration. Retirees should focus on spending time with the people they love, experiences, and living a life of joy and meaning.

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A writer explains why Costco is her preferred source of milk. Read on to learn more. 

As a mom of three kids, milk is something we go through a lot of in my household. Not only do my kids still drink it with many meals, but as a cereal lover and coffee drinker, it’s a necessity for me, too. In fact, most weeks, we go through two or three gallons of milk, so it’s important to me to find milk at a reasonable price point.

And Costco definitely has great prices on milk. But that’s not the only reason I buy my milk there.

It’s a matter of quality and staying power, too

My family’s preference is 1% milk, and the Kirkland version costs $3.74 per gallon for same-day delivery through Costco. But that’s the online/delivery price — not the in-store price. I find that when I buy that same milk at my local Costco, it’s about $0.50 cheaper per gallon. By contrast, at my local Stop & Shop, a gallon of 1% milk costs $4.79.

Now, it’s worth noting that Costco prices vary by region, so the cost of milk in New Jersey might be different from the cost of milk in New York or California or Tennessee. But either way, I find that there are savings to be reaped by purchasing milk at Costco versus another source.

That’s just part of the reason I buy my milk there, though. See, I tend to refer to Costco milk as “magic milk” because its expiration date is often two weeks out or more from when I buy it. By contrast, when I go to a local supermarket, I find that the milk’s printed expiration date is usually just two or three days out. That’s not at all convenient.

Even though we drink milk regularly in my household, a short expiration date makes it more likely that we’ll end up having to throw out some milk due to spoilage and run to the store for more. But that’s not a concern with Costco milk.

And to be clear, I’ve purchased Costco milk with an expiration date two-plus weeks out many times over, and I’ve found repeatedly that the milk actually does last and taste good 15 days after purchasing it. So those lengthy expiration dates really are legit.

So how does Costco manage to pull that off? I spoke to a store employee and their theory was that Costco’s means of transporting and storing milk may be superior to those employed by regular supermarkets. In other words, that employee seemed to think that it wasn’t the milk itself that was so particularly long-lasting. Rather, it was the way Costco procures and stores it.

That makes sense, because if you’ve ever purchased milk from Costco, you’ve probably had the experience of walking into a freezing cold room, grabbing your gallons, and running back out before your nose turns red and your fingers lose feeling. But hey, I’m willing to endure 45 seconds of personal discomfort to get low-cost, quality milk that lasts.

A great way to avoid food waste

Many people routinely throw money away in the form of food waste. And at Costco, that’s a real danger seeing as how you may be buying a lot of things in bulk.

But thankfully, Costco’s milk is less likely to go bad on you before you get a chance to use it. So in addition to a lower credit card tab, you get the benefit of not having to go back to the supermarket every two days to replenish your milk supply.

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Some states are no-fault states when it comes to car insurance, but others are fault states. Read on to learn the difference between the two. 

Different states have different laws about how car insurance claims are handled.

The majority of states are “at-fault” states, but some are considered “no-fault” states. It’s important to understand the differences between at-fault and no-fault states, as they can affect a driver’s auto insurance obligations. They can also impact a driver’s rights after a crash, and can ultimately have a big financial impact that could profoundly affect a driver’s checking account balance if something goes wrong in a car.

Here are three of the key differences every motorist should be aware of so they can better understand at-fault versus no-fault insurance states.

1. Insurance requirements differ

In no-fault states, drivers are required to buy personal injury protection (PIP coverage). This type of insurance generally must be bought in addition to other mandatory coverage such as liability insurance. PIP coverage is also referred to as no-fault insurance, which is actually why states that require it are called no-fault states.

In states that do not require no-fault coverage (called at-fault states), PIP protection is not mandated as part of the state minimum insurance coverage that is required by law.

2. There are different rules for when drivers can sue after an accident

In at-fault states, drivers are allowed to sue or otherwise pursue a claim against a driver who caused a crash, regardless of the extent of the damage that occurred. In fact, it is expected that motorists who are injured in an accident, even if their injuries are relatively minor, will get compensation for medical bills, lost wages, pain and suffering, and other crash-related damages from the liability insurance of the driver who was to blame for the accident.

In no-fault states, motorists are limited in when they can pursue an injury claim against the driver responsible for causing an accident to happen. They typically must rely on their own PIP coverage for more minor injuries and can try to recover compensation for injuries from the other driver only when their injuries were pretty serious.

The exact situations when a crash victim can sue in a no-fault state can vary from place to place, but generally medical expenses must exceed a certain amount (such as $2,000, $3,000 or even $10,000) and/or the injuries must be serious enough to cause permanent disfigurement, permanent impairment, or death.

3. No-fault insurance provides different coverage than at-fault car insurance

In at-fault insurance states, the reason drivers have to pursue a claim from those who cause crashes is because their own coverage usually doesn’t pay for things like medical bills or lost wages. Unless they’ve bought optional protections, such as Medical Payments Coverage, they wouldn’t have coverage from their car insurer for these things.

But, in no-fault states, personal injury protection does pay for medical bills up to PIP limits (which are often around $10,000, but could be more or less depending on location). PIP coverage may also pay for partial lost wages.

It’s important for drivers to understand these differences as the kinds of insurance they must buy and their rights after a crash are all affected by whether they live in an at-fault or a no-fault state. This can be a big issue when moving, or after a crash happens — when those involved need to decide how best to recover the monetary losses they’ve incurred.

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When you’re looking for a house, you don’t want to be turned off by cosmetic issues that are easy to fix. Find out more. 

When you’ve gotten pre-approved for a mortgage loan and started your house hunt, you need to make a careful plan. You want to buy the right home, so you want to look at the right things during your real estate search.

Unfortunately, many people end up distracted by the wrong features and could miss out on a great house because of it. Here are a few issues you should absolutely not get distracted by as you search for a place of your own.

1. Bad landscaping

Dead bushes, overgrown grass, and weedy mulch can make a house look really bad. But, they are also very easy things to fix. In fact, the average front yard landscaping project is typically priced between $1,275 and $5,876 but you could do it for much less if you DIY some or all aspects of the job.

Don’t let bad curb appeal scare you away from a home when you could fix the issue easily — especially since your actual ability to live in and enjoy the house won’t be affected without the upgrades.

2. Ugly paint colors

A bad paint job can make an entire home look terrible. But whether you’re faced with a weird mural, a dark color that sucks the life out of the room, or an overly personalized paint job you hate, you can fix it with a few gallons of paint and a brush. So, look beyond the ugly walls when assessing a home’s potential.

3. Stained carpets

Stained carpets can make a home look icky, for lack of a better and more descriptive word. That’s why they are such a big turnoff. No one wants to live with someone else’s stains and dirt — especially those mysterious stains you can’t quite identify.

But, tearing out carpet isn’t a huge or expensive project, especially relative to what it costs to buy a house. You could replace the carpet or even switch to hardwood or luxury vinyl tile to give the house a new updated look.

Since this is easy to change and won’t require doing anything drastic, like cutting walls or moving plumbing, you should not pass up a perfectly good house just because of issues with the flooring material.

4. Dated countertops

Finally, dated countertops can make a kitchen look like it is in need of a major remodel — especially since the popularity of HGTV house-hunting shows probably have you convinced that living with Formica countertops is a fate worse than death.

But, you can replace countertops with granite, quartz, or even marble for a few thousand dollars in most cases — or less if you have smaller counters and can get by with remnants. If you don’t need new cabinets and a full kitchen remodel isn’t in order, you shouldn’t be worried that replacing dated countertops will break the bank.

Ultimately, these four issues are all easily fixable for an affordable sum, so don’t focus on them when looking at homes even though they can make a big impression. Instead, look at the bones of the house, the floor plan, the location, and the view — since those are things you can’t change.

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When it comes to bank accounts, you have options. Read on to learn where one writer is putting money for her future home purchase. 

There’s a whole wide world of financial accounts out there, and if you’re saving for a big goal, you might wonder which one is best for your money. For the last eight months, I’ve been putting money aside to buy a home in the near future. I’ll need to cover a down payment, a home inspection, closing costs, and likely other expenses along the way to becoming a homeowner. Plus, I want to leave myself with some cash left over, in case I want to make immediate improvements to my new home or something breaks right away.

I could’ve opened a brokerage account for the money. A money market account was also a possibility. And I could’ve even opened a certificate of deposit (CD) account. Ultimately, I didn’t choose any of these, though. Here’s why I opted for a high-yield savings account instead.

Savings accounts are safe

After a few extremely high-profile bank failures earlier in 2023, many people are nervous about banks and wonder whether their money is safe. A bank is a much safer place for your money than say, a jar buried in your backyard or under your mattress. This is predicated on whether your bank has FDIC insurance. If it does (and you can check here, using the FDIC’s BankFind Suite tool), up to $250,000 of your money, per person, per insured account type (checking, savings, money market, CD), is covered. This means that if your bank fails, your money will be returned to you.

Invested money, however, is not protected from loss in the same way. If I invested my house money, I would be putting it at risk. Stock values fluctuate in the short term, and since I have less than a year’s timeline for this money, investing it would be a bad idea. Now, if I was saving this money to retire on in a few decades, a brokerage account would be a good place for it, because I would have time to ride out the market’s swings and benefit from many years of compound interest.

Savings accounts make money management easy

My savings account is extremely easy to use. It’s at a different bank from my main checking account, but I can use a payments app to send money to it easily, any time I want. If I had opted for a CD, I wouldn’t have this flexibility to add (and remove) money anytime. With a CD, your money is locked in for the term length, and you can neither add more nor withdraw without a penalty.

My account has some neat tools that make saving, dare I say, more fun? It gives me the option to create “buckets” within the account, which means I can not only track the progress of saving for a home, but I can also keep my quarterly tax payments separate from it and save for smaller goals, like travel.

Savings accounts can help your money grow

I opened my savings account at an online-only bank, because it pays a higher APY than brick-and-mortar banks. This is because online banks don’t have physical bank branches to maintain, so they can pass on those savings to account holders. My account’s APY has risen multiple times since I opened the account last spring, and it’s currently 4%.

I have a savings account at the big national bank I’ve been with since college, but my APY on that account is only 0.02% as of my most recent statement. That’s why I keep the bare minimum balance in that account, to keep me from paying maintenance fees and so I have a few hundred dollars in case of emergency or an accidental overdraft on the checking account linked to it.

Money market accounts pay a generous APY too, but they sometimes come with a minimum balance requirement to avoid a maintenance fee or earn the highest APY available. Ultimately, I can earn a comparable APY on my savings account, with no risk of paying fees.

Any way you slice it, a high-yield savings account is the perfect place for my house fund. It’s also a great place to keep your emergency fund and a nice way to introduce kids to banking and saving money. If you haven’t considered your high-yield savings account options lately, I encourage you to do so — you can get a high APY, convenience, and safety.

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