5 Financial Blessings to Be Thankful For Today
November 28, 2013We may have evolved to focus on the bad things in life (our more cautious ancestors were more likely to survive and reproduce) but today is a time to give thanks for the good things that we too often take for granted. This applies to our financial life too. Here are 5 financial blessings we can be thankful for this Thanksgiving and some steps you can take to make the most of them:
1. Tax rates are still at historic lows. Although last year’s compromise to avoid the fiscal cliff raised taxes rates on individuals earning over $250k a year, the deal made tax breaks permanent for 98% of Americans and 97% of small businesses and extended tax breaks like the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit for at least 5 more years. This leaves the US with one of the lowest tax burdens in history.
Action Step. If you’re worried about tax rates going back up, consider contributing or converting to a Roth IRA. You’ll pay taxes now at today’s low rates but the money can grow to be tax-free after age 59 ½ as long as you’ve had the account for at least five years.
2. Mortgage rates are also still low and home prices are rising. Mortgage rates have generally been falling since September, when the Federal Reserve announced they’ll keep buying $85 billion a month of bonds to keep rates low. This has helped home prices to continue to rise.
Action Step: If you own a home, see if you can save some money by refinancing your mortgage or by using a home equity loan to pay off higher interest rate debt. If you don’t own a home, now could be a good time to buy if you can afford it.
3. New law lowered student loan rates. Federal student loans rates are now 3.9% for undergraduates, 5.4% for graduates, and 6.4% for parents this fall and were applied retroactively to any loans taken out after July 1. According to the White House, this will save students an average of $1,500 on loans they took out this year.
Action Step: With rates so low, students and parents should consider using these savings to pay down higher interest rate debt like credit cards and start saving for the future.
4. Stock market hits record high. Surging stock prices have pushed average 401(k) balances to new highs.
Action Step: It may not feel like it but your portfolio is more risky now. Lock in some of those gains by rebalancing your portfolio, selling some of your stocks or stock funds while they’re relatively high and reinvesting that money in investments that are lagging like bonds, cash, and real assets. After all, today’s winners may be tomorrow’s losers and vice versa.
5. Affordable Care Act exchanges open. While the rollout has been notoriously problematic, the new health insurance exchanges will provide a way for people to purchase insurance who previously may not have been able to due to pre-existing conditions.
Action Step: If unaffordable health insurance premiums were preventing you from leaving your employer, you’ll be able to purchase health insurance through the exchanges and perhaps retire earlier than you thought.
Can you think of other things to be financially thankful for? Feel free to share them in the comments section below. Now go and enjoy your turkey!