peak-level

Overcoming Financial Fragility

Fri, 10 Apr 2026 23:07:58 GMT

Strategies to Avoid Financially Living on the Edge

For an audio version of this article, click Play in the sound bar below.

The United States is the wealthiest country in the history of the world, yet many of its citizens struggle to keep their heads above water financially. You might ask yourself, how can this be the case? Part of the answer is that we live in a culture that treats income as wealth, when those two are not the same thing. Directly in line with that is the fact that regardless of income level, the majority of people in this country are living paycheck to paycheck. In other words, they spend virtually everything they earn, or in some cases, more than they earn. This brings to mind something Dr. DeForest Soaries, who served as the keynote speaker for the 2026 Financial Empowerment Conference , shared with the audience at the conference and on the podcast, Know Better to Do Money Better. He said that perhaps the most important financial issue people face today is financial fragility. What that means is as long as things are going according to plan, your finances aren’t a problem, but the smallest upset in the plan can bring your financial house down like a house of cards. Of course, that’s no way to live, having to worry about something unexpected blowing up your financial life without warning. We see this play out in a variety of ways, but the current environment we find ourselves in, with prices spiking on the heels of policy decisions like tariffs and wars, has put financial fragility in the spotlight as individuals and families seek to stay afloat in challenging economic times. The important thing to remember is that there are always going to be things that happen unexpectedly, and you need to have the capacity to withstand those things and not have them derail you financially. So, let’s look at 3 ways you can make yourself less financially fragile and more resilient.

Avoid Overextending Yourself

As previously stated, we live in a society that tends to normalize living on the edge. You’ve probably heard the saying that you should live within your means. In other words, don’t obligate yourself to spending so much of your income that you have no margin to absorb a shift in expenses, like we’ve seen caused by increases in the rate of inflation. Unless you own your own business, you may have a limited ability to control your income, but regardless, you have some control over what you spend your money on. Yes, there are some things you cannot control in that regard either, like the level of rent you may have to pay where you live, but more often than not, becoming overextended is a choice, not strictly a result of circumstances. If unexpected circumstances put you in a difficult position, and you need a temporary fix, often the fix involves borrowing to bridge the gap. That can come in the form of a loan or even a credit card. The credit itself is not necessarily the problem. Often, when people go the route of financing to cover a shortfall, they have all the intentions in the world of paying the money back quickly. However, those original intentions don’t always pan out, and what was supposed to be a short-term stopgap turns into a long-term drag on your finances. If this cycle sounds familiar to you, understand that sometimes when your plan gets upended, you may have to take a step back, but it often takes discipline and resolve to commit yourself to not staying in that place and bringing yourself back to a place of greater financial stability.

Live Your Best Life…Not Somebody Else’s

Some of the things that can cause you to overextend yourself are circumstances beyond your control that cause you to spend more on things you need. On the other hand, people often find themselves spending more than they can afford to on things they don’t need. The reasons can vary from wanting to feel better after having a bad day to filling an emotional void to feeling like you deserve to treat yourself or other reasons. Along those lines, in this social media driven culture, it is now commonplace to see people posting about the lavish lifestyle they are living or the incredible travel experiences they are having. When you see those images, it can cause you to feel like you deserve some of those things too. There are a number of issues with that thinking. First, you have no idea how real the images are that are being displayed for the main purpose of getting you to click on that post. Secondly, if it does happen to be real, you will never know what that person did to get to the position where they were, and it has absolutely nothing to do with your situation, so comparing your life to someone else’s is not a productive use of your time or mental energy. Regardless of the reason, spending on things you don’t need if you are already in a financially fragile state, is not likely to end well. The wise approach is first to ensure that you can cover the cost of everything you need, and if you still have money to spend on the things you want, do so in such a way that you don’t dig yourself into a hole.

Prepare for the Rain When the Sun is Shining

Thus far, most of what we’ve talked about is how you spend the money you have, but there is another piece of the puzzle that is also extremely important, what you save. We live in a society where businesses are looking for any way possible to separate you from your money to buy their product or service. Companies spend tremendous amounts of money on advertising so they can entice you to spend your hard-earned money on what they have to sell. All of that can make it difficult to keep from having your expenses creep to the point where you are living on the margins. However, you do have choices, and one of the choices you have to be strong about making is building the habit of saving from your income. For most people, it is a lot more fun to spend than to save, at least in that moment. But, it’s a lot less fun when your spending has put you in a bind, and you find yourself struggling to make ends meet. To lessen the likelihood of putting yourself in that position, if you build a habit of saving, you can build up enough of a Cash Reserve so that when trouble comes, you have that saving as a critical first line of defense. When your income is such that you can take care of everything relatively easily, the tendency is to spend to your limits, but that is exactly the time that you want to carve out some of what you make and put it away for a rainy day. The question is not whether a rainy day is going to come, it is when that rainy day is going to come, and you want to prepare yourself for it before it arrives by building the habit of saving and exercising the discipline to maintain your savings for when they are needed.

Living in a state of financial fragility may not always be a choice, but when opportunities present themselves for you to move from fragility to stability, it is important that you take advantage of them. If you do that, you will separate yourself from the masses and be on much firmer financial footing.

Stewardship Emphasis
Living on the edge may feel exciting in the moment, but there is something to be said for having the peace of mind that comes from having stability.

The Empowerment Channel | Volume CCXLVIII | Dedicated to Promoting Financial Education through Stewardship

Avoiding Panic During the Current Period of Uncertainty

Mon, 16 Mar 2026 16:29:55 GMT

Tips for Remaining Stable during Chaotic Times

For an audio version of this article, click Play in the sound bar below.

As of the writing of this article, the United States is engaged in a military conflict (AKA War) with Iran after having conducted a bombing campaign at the end of February. There are a lot of questions as to why we chose this course of action and the timing of it, but there has been and will likely continue to be fallout from the decision to take such aggressive action. There are some obvious financial impacts that many of us feel as a result of the situation, but to focus on the financial impact minimizes the human cost that is being paid. U.S. lives have been lost, and other countries involved in this conflict have had their share of deaths as well. As we consider the ways this situation a world away is impacting our finances, we should not forget that some families will feel the effects of this in a variety of ways for many years to come. From a financial perspective, there are direct costs that we can easily see, but there are also plenty of indirect costs that we may incur, and we have to be mindful of those as well. Situations like this with geopolitical turmoil happen from time to time, and those situations can create financial disruption, so in this issue of the newsletter, we will discuss some tips that can help you keep your finances on the right track even as we face a period of uncertainty with how this conflict will play out.

Keep from Blowing Your Budget as Costs Increase

With this war occurring in the middle east, the first thing that comes to mind is how it will affect fuel prices. Within a week from the U.S. strikes on Iran, gas prices in the U.S. increased by around 15% because of the expectation that we will experience oil shortages in the near future. Unfortunately, that may be only the tip of the iceberg, as is often the case when fuel prices are impacted. Most of the goods and services we buy either require transportation or in some other way have fuel cost as an input. So, not only can we expect that we will pay more at the pump, but other items we buy eventually are likely to increase in price as well. Many households are already struggling to deal with the price of so many things today, so this only adds more stress to an already stressful situation. All wars have their own set of circumstances, but the war in Iraq that began in 2003 and was initiated by the U.S. may be the closest proxy for what is happening now. For those who may not remember, in that instance, the U.S. went to war with Iraq over the claim that they were in possession of weapons of mass destruction (WMDs), and it resulted in the overthrow of Iraq’s leader, Saddam Hussein, and the eventual collapse of their government. The initial invasion and the political upheaval that occurred in Iraq happened within the first several weeks, but resentment from locals in the region sparked an insurgency, and the war dragged on much longer than originally anticipated, eventually spilling into Afghanistan. In total that war continued all the way through 2011. The cost the war that was confined to Iraq was an estimated $2 trillion, but with the continual military actions that followed, there was an additional cost of as much as $6 Trillion. Separate from the increases in direct costs Americans saw in the things they bought, the cost of that war was ultimately paid by the federal taxpayer. Obviously, the decisions on how the U.S. will proceed with its war plans in this case is outside of the average person’s control; however, individuals and families still have to make decisions day-to-day that are within their control. You may not have the luxury of driving a lot less than normal, but where you have discretion over your driving trips, you may want to be more mindful and avoid driving more than necessary while fuel prices are elevated. The same can be said for other forms of travel because most transportation is going to be affected by fuel costs, so if you can delay non-essential travel for the time being, it could help you keep more money in your pocket.

Making Sense of the Markets

Trying to project where the stock market will go based on something like the war in Iran is an exercise in futility. Will the markets respond to the news of the day? Certainly, but can we ever say that the reason for how the markets moved on a given day is only related to that piece of information? No. The reality is that the markets are complicated and factor in so many different data points that it is difficult to pinpoint how any individual factor figures into the market’s movements. Needless to say, a war such as this does not tend to have a positive effect on the markets, partly for the increases in costs just described. However, on the other side of the coin, with increased fuel prices, fuel companies could actually profit from the situation. Again, if we turn back to the war in Iraq as a reference point and now with hindsight, it is interesting to note that you did not see a significant decline in the stock market, either initially or longer term that could be tied back to the war. The biggest decline during the time of the extended war happened in 2008 and 2009, but that decline was largely driven by the global financial crisis. Returning to the present, in the week since the bombing began in Iraq, the S&P 500 dropped by about 2%. With so little time to evaluate the response of the stock market, it is much too early to assess what the effect of the Iran war will be on the movement of the market. With that said, the impact of increasing costs will probably weigh on how the markets respond because inflation is already a big factor in the direction of the market, and that is likely to get worse if higher fuel prices persist. In addition to that, there is the potential that the concerns noted could slow economic growth, which could negatively impact employment. All of this provides the potential for not only big swings in the stock market but market also a decline in the level of the market indexes. Based on those circumstances, the short-term outlook does not look rosy, but if you are an investor, it is never wise to engage in short-term thinking. Yes, personal circumstances may lead you to liquidate investments before your anticipated holding period has concluded, but when investing, it is wise to look at a timeline of years and not months. Does that mean, it is unwise to pay attention to the current market? No, you should factor in what is happening now, but you just shouldn’t base long-term decisions on what may be a shorter term situation.

Guarding Your Mental Health

The first two tips we discussed are things where you can see a direct financial impact of the war, but there are also things that indirectly can affect you financially as well, perhaps most notably the way you are feeling and how it causes you to behave. Anytime we are under stress, our decision making is likely to be impacted. Sometimes stress may work in a positive way, creating sharper focus, but it also can cause us to make poor decisions that we may regret later. As such, this tip is not strictly about the war itself but how it could affect your mental state, and the decisions you make as a result. One thing that is common when people are under stress is the use of “retail therapy” to make you feel better. Buying something can give you a jolt of good energy right away, whether it is something you should or shouldn’t buy. While you may feel an initial boost from the purchase, you may look at it later and ask yourself if it was really something you should have bought. Often the answer is no, and that’s when the consequences of your behavior can have a direct financial impact with spending that may not have been in your plans. We already discussed it, but in times like these when uncertainty grows, the markets will tend to become more volatile. This can cause people to make investment decisions with less of a long-term approach, but also can result in a pullback in the value of your investments, and therefore a loss of feeling as financially secure, which can again lead to additional poor financial decisions.

When events that are so far outside our control happen, like this war in Iran, the anxiety of the moment can lead us to decisions that hurt us financially. As with so many things, it is often worthwhile to pause in a moment of stress and get your bearings so you can be clear-eyed about the best way to proceed.

Stewardship Emphasis
When you are in the eye of the storm, all you want to do is escape to safety. Sometimes you have to get comfortable even in difficult surroundings, which can eventually make you stronger.

The Empowerment Channel | Volume CCXLVII | Dedicated to Promoting Financial Education through Stewardship

Using Your Money Productively to Live Your Dreams

Mon, 16 Feb 2026 18:04:03 GMT

A Strategic Sequence to Achieve Financial Freedom

For an audio version of this article, click Play in the sound bar below.

On some level we all understand that building wealth should be more than a counting exercise. The point of building wealth is not to say you have so much money in your bank account but instead to position you to live the life you desire. Building wealth also can happen in a variety of ways. For some people, building wealth can start with freeing themselves from the burden of debt, while for others it is acquiring the assets that enable them to experience greater financial freedom. I have served on the planning team for the Financial Empowerment Conference hosted by Turner Chapel AME Church for more than the last decade, and in that time, we have put on a number of impactful programs to provide high quality financial education and resources to our audience. In 2026, we are celebrating the 15th anniversary of the Financial Empowerment Conference Series, and our theme for this year’s series brings together these concepts on wealth building with a specific intent, “Eliminate to Accumulate to Activate: Moving from Debt Into Purpose". This theme recognizes that the end goal of building wealth is not simply having your debts paid off or having a healthy sum of money you can put your hands on, but the goal is actually to allow you to do the things you desire without the restriction of money getting in the way of it. The conference will be held the weekend of March 13-15, 2026 at Turner Chapel AME Church in Marietta, Georgia, and we invite all of our readers, listeners, and those who are interested to join us for the conference in-person or virtually by registering at this link . The conference will feature Keynote Speaker, Dr. DeForest B. Soaries, a retired pastor as well as an acclaimed author and speaker, along with a panel who will speak to and answer questions on how to eliminate debt, use debt as a productive tool, and how to build wealth such that you can live the life of your dreams. As we get ready for this year’s conference, we want to highlight the importance of these principles in this issue of the newsletter as a way of laying the groundwork for those who join us for the conference and throughout the year.

Eliminating the Obstacles to Your Financial Success

While debt is a tangible issue to focus on and seek to eliminate to help you better manage your money, the truth is that there are many things that can pull us away from where we want to be financially. The issue could be the habits you’ve developed over the years or even not effectively managing your time to the point where you miss out on opportunities to create income and/or build wealth. Even when we know these things are not in our best interest, it can sometimes be difficult to make the necessary changes to put our finances on a better path. As is often said, the first step in making a turnaround is acknowledging the situation and then identifying the problem. Once you understand what needs to change, you then have to be willing to take the steps to make the change a reality. Eliminating the things that work against your interests, while difficult, can put you on the road to achieving the financial freedom you desire. Because debt is such a burden for so many people, and it is a weight that prevents them from being able to use their money in a more productive way, an area of focus for this Financial Empowerment Conference is eliminating debt. There is nothing inherently wrong with debt. In fact, when used wisely, debt can enable you to take advantage of opportunities you couldn’t otherwise, using other people’s money. The problem is that far too often, debt is used for purchases that do not have lasting value, and because of accrued interest, the amount of that burden can grow to a point where it closes off avenues that you would want to pursue. So, whether you need to eliminate debt or some other issue in your life, we encourage you to take the step of Eliminating to prepare yourself for the future you desire.

Accumulating to Tackle the Moment and Prepare for the Future

It is a law of science that a vacuum is always going to be filled with something. So, if you make the decision to eliminate something that is holding you back, if you don’t intentionally fill that space with something productive, there is a chance that you could eliminate one bad thing for another. From a financial perspective, instead of allowing the void left by your elimination of debt (or something else) to be filled with something that is not working towards your best interest, you can be intentional about your accumulation plan to put the assets or strategies in place that will transform your financial life. When you accumulate assets, you give yourself options. Some assets you acquire on the surface may not seem to be doing a lot for you, but simply by accumulating the asset, you hold something of value that at the proper time can be converted to cash and enable you to accomplish the goals you have set out to achieve. Whether those assets are financial in the form of savings and investments, tangible in the form of real estate, or intellectual in the form of a business, the accumulation of assets increases your Net Worth and affords you the ability to put capital to work without you having to create all of that value on your own, allowing you to better navigate your present circumstances and set yourself up for what you may need in the future.

Activating Your Dreams

We can probably agree that money is necessary for living in this or any society, but hopefully we can also agree that what is more important than the money itself is what it can enable us to do. If you were given the choice of being able to look at a bank account with unlimited dollars or being able to do all of the things that bring you joy for the rest of your life, you would probably choose the latter. Why? Because it’s not the money that brings you joy, it’s what the money allows you to do and the freedom you have to do it, whether it costs a little or a lot. That is why the first two pieces of this theme, Eliminate and Accumulate are important, not just because of what they do for you financially but because of how they unlock your ability to live your dreams. This conversation is similar to the one that people have around their concept of retirement, which we discussed in Volume 215 of this newsletter . To summarize, many people look forward to retiring from the work they have done for their entire career, only to find that their time in retirement didn’t live up to what they expected. They may have focused more on the idea of retirement and what they were leaving rather than what they were retiring into. If you want to be on stronger financial footing but haven’t thought about what your life would look like when that happens, it is worth giving thought to what you want to be able to do once you have achieved a greater level of financial freedom. What you will desire to do likely will be different than what others want to do, but if you can figure out what excites you and will bring you fulfillment, you will have a stronger and more sustainable motivation to take the steps financially that will put you in the position to get there. And that can make all the difference between it being a struggle to implement positive financial change and something worth embracing.

Stewardship Emphasis
“If you feel strong enough about the WHY, the WHAT doesn’t matter.” – Benjamin Pahl.

The Empowerment Channel | Volume CCXLVI | Dedicated to Promoting Financial Education through Stewardship

Tackling Increased Health Care Costs

Mon, 12 Jan 2026 17:36:17 GMT

How to Survive in a World Where Health Care Costs Could Explode

For an audio version of this article, click Play in the sound bar below.

If you recall, the month-long standoff last year during the government shutdown was mainly a battle about how health insurance would be covered. One of the big points of contention was whether or not to maintain subsidies that were enhanced post-COVID-19 pandemic, which were set to expire. Because Congress did not arrive at a compromise, those enhanced subsidies did in fact expire, and that is expected to result in significant increases in premiums for recipients of insurance through the Affordable Care Act (ACA). Of particular concern with general affordability already being a challenge, is that people may choose to forgo health insurance coverage at all rather than pay the increased premiums, which comes with a different set of risks for those families. In addition to the expiration of the enhanced subsidies, another issue that contributed to the government shutdown was that the proposed taxing and spending package resulted in significant cuts to Medicaid, the program designed to provide health insurance to lower income individuals and families. While these issues largely relate specifically to segments of the population who receive their health insurance outside of employment, the impact is expected to spill over to everyone. With that in mind, let’s take a look at what is changing with health care costs and how you can manage those changes to limit the negative effects on your household.

Why Are Health Care Costs Increasing and By How Much?

As we noted, the expected cost increases are two-fold: a reduction in the subsidy for people who receive their health insurance coverage through the ACA Marketplace and cuts to Medicaid. On the surface, that may seem to be primarily a health insurance issue only for certain people, but it is important to understand that the health care system is an ecosystem made up of many interrelated components, and what affects one can affect many. For example, if people decide not to have health insurance coverage, rather than having a larger pool of people to spread out the risk to health insurers, a smaller pool of people can result in insurers increasing their premiums to compensate for the additional exposure. That, of course, is outside of the fact that insurance premiums tend to go up year over year due to inflation and other economic factors. On top of that, having more uninsured individuals has the potential for an increased cost burden on taxpayers to cover health expenses that those people incur, meaning what may seem to affect a smaller number of people can end up affecting most people. Before the government shutdown situation played out, insurance companies were already expecting to increase health insurance premiums by around 18% in 2026. With the expiration of the enhanced subsidies for recipients of insurance through the ACA Marketplace, projected to result in more than a 70% increase in premium cost, that combination would be expected to more than double the premiums for people who receive their health insurance via the ACA. If we assume the projected 18% increase in insurance premiums affected everyone with health coverage, not even considering the other potential consequences discussed, health care expense will likely be taking a bigger bite out of your income.

Your Health Insurance Options

You can essentially consider your health insurance options falling into one of 4 buckets:

1. Employer Based Coverage

2. Private Insurance Coverage (including through the ACA Marketplace)

3. Medicaid for Lower Income Families

4. Medicare for Retirees

One of the perks many employers provide is covering some of the cost of their employees’ health insurance. As a result, employees often don’t really understand the true cost of the coverage they have. While employers may pay less for coverage due to their size when shopping for health insurance coverage for a group of employees, the insurance companies price their coverage based on the larger risk pool discussed earlier, so the cost of the insurance may only be marginally less than private insurance. However, since the employer is bearing some or much of the cost, the employee pays significantly less out of their own pocket. While it may not be referred to as a subsidy, it amounts to the same thing, in this case with the employer bearing that cost rather than the government offering the subsidy that is ultimately covered by taxpayers. In any case, employer coverage tends to provide increased affordability for working health insurance recipients. The cost of private insurance, on the other hand, is borne by the recipient, and in the case of coverage through the ACA Marketplace, subsidized by the government. Recipients of Medicaid in large part are not required to pay any premiums, although some may pay small premiums or have cost-sharing arrangements. Instead, the cost of coverage for those individuals and families is mostly covered by the American taxpayer. Finally, retirees who are enrolled in Medicare pay premiums for their coverage depending on the type of plan they are in and their income level.

Managing the Cost within Your Budget

Of course, nobody wants to pay more than is necessary for health care or anything else, and it is a challenge when those costs increase, but it is a reality people will need to work around because in large part, the cost structure is outside of their control. So, how do you build that into your plans so the increases in costs don’t derail your budget? If you are fortunate enough to have employer health insurance, you have the ability to deal with your health expenses on a tax advantaged basis. First, the premiums you pay out of your payroll check are not counted towards your taxable income, and with many plans, you have the option of either a Flexible Spending Account (FSA) or Health Savings Account (HSA) that enables you to withhold money from your paycheck so that you have a bank of funds that can cover the cost of out-of-pocket health expenses. It may seem like a small thing, but if you happen to be in an overall 30% tax bracket, the combined tax savings on health insurance and out-of-pocket expenses could be in the neighborhood of $1,200 per year assuming total costs of $4,000, which is not chump change. Since most people may not notice the tax savings for their health insurance premiums, if we assume 60% of your health expenditures are for out-of-pocket expenses, you would be looking at the equivalent of an additional $720 available to you just because of the tax savings involved with using an HSA or FSA, enabling you to stretch your money farther. If you are still working and must enroll in private health insurance, your options are more limited to affect your budget. In that case, you want to be diligent about the plan you select to ensure it meets your needs, allows you to see the medical professionals you desire to see, and covers the medicine you must take. If you are obtaining your insurance through the ACA Marketplace, while the level of subsidy is decreasing, you still may be able to qualify for some level of relief. A key to maximizing your subsidy is to have good documentation on your expected household income, and if you experience a change in circumstances, like a job loss, you may be able to use a lower income figure to help you qualify. For those eligible for Medicare, there are a variety of choices to make, which we cannot go into here, but those choices, such as choosing a Medicare Advantage Plan, may enable you to reduce your premium costs and/or out of pocket costs.

The bottom line is that like most everything these days, health care costs are on the rise, and it is important to understand what’s coming and how you can control the amount of your own costs the best you can. Don’t complain about what you can’t change, but instead do the best you can with what you have to work with.

Stewardship Emphasis
In many ways, health is wealth, but if you can spend less to be healthy, you will be better off for it.

The Empowerment Channel | Volume CCXLV | Dedicated to Promoting Financial Education through Stewardship

Setting Yourself Up to Live in a More Expensive World

Fri, 12 Dec 2025 21:58:37 GMT

Ideas to Manage Your Life Regardless of Affordability

For an audio version of this article, click Play in the sound bar below.

Whether it is filling up your car with gas, picking up food from the grocery store, or this time of year, buying gifts for family, everything feels more expensive these days. It is a fact that most people are aware of, that inflation increases the cost of goods and services over time. What seems to have caused much of the concern today is the amount of increase that we’ve seen in the last 4-5 years, particularly since the COVID pandemic. Because the entire world was largely shut down for a while, extreme measures were taken by the Federal Reserve (Fed) in the U.S. and central banks around the world to financially support their populations, and increased inflation was one of the negative consequences of that. As a result, top of mind for many households in America is affordability, the ability to take care of the needs of your household. Unfortunately, the increase in prices has made it much more challenging for people to take care of their needs, and that doesn’t even address giving them the money to spend on the things they want rather than need. It all leads to people having a level of frustration at not being able to do the things they have been accustomed to doing because it just feels too expensive. As we wind down 2025 and look forward to another year, one that could continue the trend of life getting more expensive, in this last issue of the newsletter for 2025, we’d like to share a few ideas that can help you manage your money more effectively in a world where things are getting more expensive every day.

Understand How Inflation Really Works

The concept of inflation is one that many people intuitively understand through their life experience. You can think of just about anything you purchased many years ago, and you would expect that it would cost more to purchase that item now. As we said, the high levels of inflation that occurred in the aftermath of the COVID pandemic seemed to shock people’s conscience to the point that they lost some of their normal perspective on how inflation works. At a base level, inflation simply means that costs tend to rise over time. For many years, pre-pandemic, we were accustomed to inflation that was more manageable. In the 20 years before 2020, the average rate of inflation was 2.2%; however, in the years of 2021 through 2022, the average rate of inflation increased to almost 7%, more than triple the rate of the prior 20 years. With measures taken by the Fed to combat inflation, the average inflation rate in the years of 2023 through 2024 dropped to 3.1%. Through the first 3 quarters of 2025, the annualized rate of inflation has risen to about 3.7% as the economy absorbs the impact of new tariffs that have gone into effect. While the spike to the inflation rate post-pandemic has been hard to take, the rate of inflation from 2000 through 2024 is more in line with historical averages at about 2.6%. Of course, our most recent experience tends to weigh more heavily in our minds, so the fact that average inflation over 25 years is closer to average doesn’t make it easier to deal with costs that are more than 25% higher than they were pre-pandemic. When elected officials or candidates for public office talk about what they will do to make things more affordable, if they are being honest, they can only hope to reduce the rate at which costs increase. The reality of inflation is that in general, prices go up over time. There are some exceptions to where certain costs may decrease on some things for a little while, but anyone who tells you they are going to make costs lower in general, is not being truthful. The best you can expect is that the rate of increase stays at a reasonable level, which according to the Fed is a target of about 2%.

Set Proper Expectations for How Your Income Can Support Your Lifestyle

If we accept the fact that things get more expensive as time goes on, there are two ways to manage it: increase your income or find ways to spend less for the things you need (e.g. choose less expensive items, cut some items out altogether). If you’ve asked yourself why the raise you received on your job didn’t seem to give you more breathing room with your cash flow, it may be because you simply received a cost-of-living adjustment (COLA) to your pay. Most employers adjust their employees’ pay via COLA in order to allow their income keep up with the rate of inflation. Note that the intent is not necessarily to help you get ahead, but to keep up. The same can be said for retirement income such as Social Security, that has built in COLAs that are generally applied every year. For retirees who rely, at least in part, on pension income, if that pension does not have a COLA, the fixed nature of that income can cause you to actually have less spending power as the years go on, which is where the concept of living on a fixed income comes from. If you are not in a position where you can control your level of income (i.e. you only have employment income or are a retiree only receiving benefits like Social Security or a pension), inflation can feel much more difficult to manage because increases in your income, if they occur, may only provide minimal relief from increased costs. If you are an employee, what can help you get further ahead is receiving a promotion rather than just a COLA pay increase because those can more significantly raise your level of pay. Alternatively, if you are an entrepreneur or business owner, you may have more latitude to increase your level of compensation because you have more discretion over pay decisions. No matter how you bring in your income, it is important to set expectations for what that income will afford you. It may not be something that you want to do, but taking stock of your overall income picture and matching that to your cash outflow is very important in allowing you to live according to the standard you desire today and in the future. I said cash outflow because you should consider not just your expenses but also what you intend to save.

Control What You Can Control

When it comes to managing your cash flow to cover your expenses, some things are within your control but others are not. Inflation is one of those things you cannot control, other than by participating in the electoral process and electing officials whose policies will be more inflation-friendly. Even then, what an electoral candidate says they will do may be very different from what they actually do, so realistically, your control with respect to inflation is extremely limited. That said, you are not powerless when it comes to managing your lifestyle as things get more expensive. As we said, you can look for ways to lower what you have to spend on the things you choose to purchase. You can also generate more income, which could come with its own set of tradeoffs. If you are an employee who cannot dictate your level of pay, you could consider taking on additional work or monetizing skills that you have through some type of business activity. If you are an entrepreneur or business owner whose compensation is driven by your level of performance, you may be in the most advantageous position to combat inflation because you don’t necessarily have to do anything new to generate more income, you just have to do more of it or do it more efficiently. What is important to keep in mind is that you can pretty much bank on things getting more expensive, so rather than stress out about it, put a plan in place to help you adapt to having to spend more for what you need and want.

Stewardship Emphasis
Don’t throw your hands up in frustration about something that is inevitable, adapt to it.

The Empowerment Channel | Volume CCXLIV | Dedicated to Promoting Financial Education through Stewardship

Keeping Your Finances from Being Derailed by the Holiday Season

Mon, 10 Nov 2025 17:42:15 GMT

Tips to Avoid Financial Wreckage Coming Out of the Holidays

For an audio version of this article, click Play in the sound bar below.

As the year begins winding down, many people look forward to spending time with family and friends during the holidays in November and December. No matter what holidays you celebrate, or even if you don’t celebrate them at all, once the calendar turns to November, there is a different feeling in the air, in large part because the holiday season is approaching. As much as people may look forward to the enjoyment of getting away from the normal grind and connecting with loved ones, this time of year can also be stressful, especially from a financial standpoint. Whether it comes from making travel plans and dealing with their associated cost, hosting a family gathering and paying for food and decorations, or purchasing gifts for loved ones, you can find yourself with a much higher outlay of cash than normal, which can put you in an uncomfortable financial position. It is often the case that the damage done at the end of the year is what causes people to create their New Year’s resolutions to get their finances in order to get off to a better start in the aftermath. Unfortunately, after the dust settles and you get back into your normal routine, you may forget about the lessons learned and end up repeating the cycle again as the next year winds down. The good news is that you don’t have to stay on that seesaw that creates financial stress, but with some attention to detail, you can keep the holidays from taking your financial plans off course. With that in mind, we have a few tips to help you change the dynamics during this holiday season so you can feel better about things going into next year.

Don’t Get Caught up in the Sales Hype

Whether it is Black Friday, Cyber Monday, or the day after Christmas, this time of year, retailers promote their BIG Sales, promising massive discounts on the items they offer. This is not to say you can’t get a good deal during these specials, but it is important to understand that they are primarily advertising to get you in to look at what’s available, knowing that even if you came for the sale, you may leave with other items that may not have even been on your mind. It’s the psychology of sales – hit your brain with the adrenaline of feeling like you are getting a deal, and then you are loosened up for anything else that catches your eye. If you are going to shop during these times, it is a good idea to go into it knowing what you want and what you are willing to pay for it. If the deal helps you get there, that’s great, but beware of stretching yourself because the discount just seems too good to pass up. Whether there is a sale or not, if you know what amount is reasonable to pay for any item, it makes you a more informed shopper and allows you to pay a fair price for your purchase. It is also helpful to understand that typically there is so much profit margin in a lot of items sold to the public that even when an item is deeply discounted, you may not be getting the deal you think you are. Retailers are not in business for the purpose of making their customers happy. They are in business to turn a profit, and if they can make customers happy in the process, all the better.

Plan Your Purchases Well in Advance

If you are one who is inclined to give gifts to others or even yourself during the holidays, even as the big discounts are promoted, retailers know that people who may not normally shop are in the market for purchases, and they often can take advantage of the situation. If you know that you are going to be purchasing gifts to be given during the holidays, by planning in advance, you can be on the lookout during the course of the year and perhaps find good deals on items without the pressure of knowing you only have a short amount of time to make your purchase. Not only does planning well in advance give you a better opportunity to possibly obtain a better deal, but you also can determine what you are willing and able to pay for something, and set aside money for it if needed, again without the looming deadline of the holiday upon you. For example, if you planned at the beginning of the year for what your expected holiday spending would be, you could see the total of your spending compared to your available savings and income coming in during the year, and if you had the ability to do so, you could start early creating your own layaway type program if you didn’t already have the cash on hand to cover those purchases. Then as opportunities presented themselves during the year, if you could purchase your planned gifts at a good discount, that would keep more money in your pocket.

Establish Reasonable Limits…And Stick to Them

This final tip naturally follows the first two. One of the reasons people get financially stressed during the holidays is spending well outside of the norm. We can have a tendency to justify that because it is a special time, it's okay to go overboard with spending. In previous generations, that may have not been as much of an option when you could only spend what you had the money for at the time. Because credit is now ever present, you can spend more than you have and simply finance it, but that is not an effective financial approach to buying what you want to purchase. Whether you are throwing a party that gets more extravagant than planned or buying gifts, it is easy to spend more than you intended during the holidays. Unless you’ve made provisions for it, you may end up paying way more than the value of what you purchased when you tack on the interest and potentially other charges that go along with financing something that wasn’t meant to be financed. A better approach is to determine what is reasonable to spend for your holiday activities and do your best to stay within those bounds. You may not wow your loved ones doing things this way, but you are also less likely to dig yourself into a hole that makes it more difficult to support your loved ones in the ways that they actually need you to.

Stewardship Emphasis
You will be happier and come out further ahead when you don’t spend money you don’t have on things you don’t need.

The Empowerment Channel | Volume CCXLIII | Dedicated to Promoting Financial Education through Stewardship

Learning from the Fallout of a Government Shutdown

Thu, 09 Oct 2025 14:10:56 GMT

How You Can Survive When Your Normal Income Is Not Coming In

For an audio version of this article, click Play in the sound bar below.

It almost seems like an annual occurrence now that there is the threat of a government shutdown at this time of the year, the start of the new Federal Government fiscal year. While the reasons for the shutdowns vary from year to year, typically a result of political parties not agreeing on priorities, the impact of a shutdown is real for those government employees who through no fault of their own do not get paid their normal wages. Even those employees who are considered essential workers, despite the fact that they must come to work, also do not get paid. You may not be a Federal government employee directly impacted by the shutdown, but whether your pay could be affected by it or not, having a loss of income can happen to anyone for a number of reasons, so there is the potential for everyone to think about how they would approach a similar situation. Unexpected situations can happen to any of us, and some of those could lead to an inability to bring in income to the household. Because these shutdown “negotiations” happen with regularity, it may not have been a surprise to see the Federal government shutdown this time around, but even if you may have known it was coming, there’s a difference between expecting it and it actually happening. Obviously, for the Federal employees whose pocketbooks are affected, the impact is very real, but even if that is not you, it would be worth your while to assess how you would handle things if put in a similar situation so that you can position yourself financially for an interruption of your income. With that background, in this issue of the newsletter, we will provide some tips, including revisiting some foundational principles, that you can put in place to learn a valuable lesson from the government shutdown.

Creating a Backstop with Cash Reserves

You may have heard the statistic that a large majority of Americans do not have the savings to withstand a $400 unexpected expense. Even if you have exercised the discipline to save and build up your Cash Reserves, if something unexpected happened in the past that required you to use your stash, you may have found it challenging to build those funds back up again. It may not be an easy thing to do, but it is an important element of financial health to have a reasonable level of Cash Reserves when something unexpected happens. It is not a question of if something will happen, but when it will happen. If it hasn’t happened to you yet, as the saying goes, “just keep living”. As a result, it is critical to make it a point to build or re-build your Cash Reserves to the level you desire in case you find yourself in need of cash. There is a common rule of thumb in financial circles that you should have 3-6 months or more of your expenses in savings. That rule of thumb comes from the idea that if you lost your ability to bring in income, you would likely be able to resume generating income within 3-6 months. Depending on the work you do to earn income, your timeframe might be different, but in any case, you should determine how much savings is appropriate for you to get through such a situation. Once you’ve determined how much you need to have available, if your savings is not at that level yet, you should work to set aside funds as you generate income so that you build your savings to the desired level. As previously discussed, if you reached that level at some point and had to use those funds for the purpose intended, it is important to return to that mode of setting aside regular savings to replenish the reserves you had to use. There can be other major benefits to having a desired level of Cash Reserves outside of the loss of income, such as having to pay for a large repair bill, but the loss of income may be the biggest risk you face in your financial life, and Cash Reserves serve as a first line of defense to give you a backstop when things go wrong.

Living Well Within Your Means

You may have heard the mantra “Live Within Your Means” plenty of times, and for good reason. One of the key elements of financial health is spending less than the income you bring in. If you spend more than you make, you will most likely have to take out debt to make up the difference, which puts you in an even bigger hole because the debt payments get added to your cash outflow, and that can grow as the interest is charged on the debt. You probably also have heard that a large majority of Americans live paycheck to paycheck. It is no coincidence that you have that statistic in conjunction with so many not having the ability to withstand a major unexpected expense. The two in many ways go hand in hand. If you live paycheck to paycheck, and the paycheck suddenly stops, you are going to find yourself in a challenging spot. Therefore, it is good practice not only to Live Within Your Means, but to give yourself even more breathing room by Living Well Within Your Means, or as some would say Living Below Your Means. This is not to say that you should deprive yourself of enjoyment, but instead that you want to have a good handle on what expenses are necessary vs. those that are just nice to have so that it becomes easier if you have to scale back on expenses due to a disruption in your income. This is one of the principles of budgeting that is not always understood: you budget not for the purpose of restricting yourself but to establish priorities and ensure your money goes first towards the most important things. Another critical principle of budgeting is the idea of Paying Yourself First. If you need to build up or rebuild your Cash Reserves, Paying Yourself First is the mindset you want to take to ensure that no matter how much income is coming in, you are making saving a priority.

Stress Test Your Finances with a Trial Run

There are other principles you can employ if you find yourself with an income disruption like the government shutdown, but those two alone will put you well ahead of the game. Of course, you are more inclined to focus on those areas when something unexpected comes up and you find yourself in a pinch. At that point, it may be too late to put the necessary measures in place to withstand the situation. If things in your financial life are going reasonably well, to the point where you don’t feel the need to focus on these foundational principles, that is the perfect time to test out how you would respond if something did go awry because chances are that you won’t have such adverse consequences if things don’t go as well as you hope. So, how would you go about performing a stress test on your finances? One way of doing that would be to divert some or all of your normal income away from where you normally deposit it so that you simulate the income disruption, which will give you the opportunity to work your plan for bridging the gap. Ideally you would want to divert that income somewhere outside of your Cash Reserves pool so that you don’t artificially inflate your Cash Reserves beyond the level at which they would normally be. Keep in mind, this is a temporary test, so once you have stress tested your finances and identified areas that did or didn’t work, you can resume your normal operations but with a better understanding of how to create the structures that prepare you for the real thing. Again, if you run this test when you actually do have available income coming in, you are really going through the exercise to see how you can adjust your habits to maximize your cash flow and to see how well your Cash Reserves can sustain you during an income disruption.

The foundational principles of establishing good Cash Reserves and Living Within Your Means may seem obvious and uninteresting, but that’s why they are foundational. Just like the foundation of your physical house, your financial foundation doesn’t get headlines, but if something goes wrong with it, you can have major problems. If you can master these foundational principles and stress test your finances during good times, you will be much better prepared for future storms that may come.

Stewardship Emphasis
The time to prepare for the rain is when the sun is shining.

The Empowerment Channel | Volume CCXLII | Dedicated to Promoting Financial Education through Stewardship

Finding Unexpected Money through Unclaimed Property

Mon, 08 Sep 2025 15:46:35 GMT

What If There Was Money Available with Your Name On It?

For an audio version of this article, click Play in the sound bar below.

In these times when affordability is an issue for many households and when it is more difficult to get help from the organizations and agencies that have traditionally helped bridge the gap, finding financial relief can be a real challenge. While it is always the case that people need to advocate for themselves rather than relying on others to do so for them, the climate we are living in today makes that idea even more important. If you’ve found yourself in a financial pinch due to losing a job, not making enough on the job you have, or had an increase to your expenses for reasons outside of your control, one way to help offset those challenges is having access to cash. Unfortunately for many households, having a level of cash reserves that would enable you to take on an unexpected expense feels out of reach. If this resonates with you, there may be an avenue to help you find some relief from an unexpected source, the vast pool of Unclaimed Property. You may have heard this term before and wondered about it, so in this issue of the newsletter, we will answer questions that can help you find out if you have access to resources that you may not be aware of and how you can use those resources to help you navigate your financial situation.

What Is Unclaimed Property?

Unclaimed property is a broad term that can apply to many different things. Examples include bank accounts, insurance proceeds, security deposits, etc. The reason why assets like these can be placed into the pool of unclaimed property is that the organization that has custody of them is unable to locate the rightful owner. With a society that is as mobile as ours is and with the many engagements we tend to have, it is easy to forget about something you may have set up years ago, and when you’ve moved on from one place to another, you may have left something behind that actually has some value. In the case of a bank account or life insurance claim, it is fairly easy to quantify what the unclaimed property is worth, but some unclaimed property may be more difficult to place a value on, or it may not be as easily convertible to cash. Nevertheless, if you have left behind something of value, you owe it to yourself to request what is yours, especially if you find yourself in need of financial relief.

How Can You Find and Access the Unclaimed Property That Is Due to You?

You might ask yourself if there is any unclaimed property with your name on it, but the good news is there are resources available to help you find out if there is and how you can get to it. There is a national database that you can use to see if there is unclaimed property that could be available to you, but every state has their own database as well for their residents. The national database simply feeds into the state’s databases, so you likely will end up on your state’s website eventually to find what you are looking for. To find your state’s website, you can just do an online search for unclaimed property in your state of residence. Once you are on your state’s website, you simply have to enter your name and where you are located, and if there is unclaimed property for your name, summary information about it will show up, including who is holding the property and the approximate value of it. Keep in mind that there may be other people with your same name for whom that property may be designated, but if the property holder sounds familiar to you, you can dig deeper to see if it is in fact your property. If you want to start the process of investigating immediately, you may need to create a login for your state’s unclaimed property site and submit a claim for the property. Submitting a claim will typically require you to provide proof of identity. In these times where cyber security is of the utmost importance, you should take all necessary precautions before providing proof of your identity. If you are concerned about revealing your identity or would just be more inclined to tackle it another way, with the limited information provided in the summary, you could choose to do further investigation on your own by contacting the property holder directly. At some point, you will still need to verify your identity to claim the property, but you may be able to do so in a more controlled environment. If your property claim is approved, it can often take weeks or months before you would receive payment for your property.

What Should You Do Once You’ve Accessed Your Property?

If you are fortunate enough to find and receive payment for your unclaimed property, what you may want to do with the proceeds will be a function of your current circumstances. Whether the amount is a little or a lot, it is more than what you would have had otherwise, so assuming the amount is more than “small change”, you should try to do something productive with those funds. If you are saddled with debt that is putting a drag on your cash flow, using your unclaimed property funds to pay down your debt or paying some off entirely can be a boost to your finances, especially if you have high interest debt, such as credit card debt. When it comes to paying on debts, there are many approaches you may consider taking, but it is a good idea to do an inventory of your debt picture to see where you can make the most impact. For example, if you could wipe out a debt entirely, even if the interest rate isn’t as high as on another debt, that may be a worthwhile approach because the motivation you could gain by eliminating a debt in its entirety may outweigh the impact of the interest you would save by paying on a higher interest debt that would still remain intact for some time. Another worthy approach to using unclaimed property proceeds would be to build up your cash reserves, like we alluded to earlier, because you will rarely go wrong by strengthening your safety net. If you don’t have a need for debt reduction, and your cash reserves are in solid shape, perhaps you would want to consider using the proceeds of your unclaimed property to invest. With it being money you probably weren’t expecting, you may even be inclined to take more of a risk with that money, which could allow you to reap a greater reward with such an investment, given a high-quality investment selection and enough time for it to play out.

Stewardship Emphasis
If you know where to look, you can find blessings in unexpected places.

The Empowerment Channel | Volume CCXLI | Dedicated to Promoting Financial Education through Stewardship

Diversifying Your Retirement Plan Assets with Roth Conversions

Fri, 08 Aug 2025 16:27:41 GMT

Using Roth Conversions for Tax Free Retirement Income

For an audio version of this article, click Play in the sound bar below.

Saving for retirement tends to be the top financial goal most people have. Unlike in past generations, who often could expect to live on an employer pension and Social Security, most workers today will rely more heavily on what they have saved during their working years to fund what may be a lengthy period of time in retirement. More often than not, the bulk of savings that people plan to tap into is in one or more retirement plans, whether they were funded through an employer plan or an Individual Retirement Account (IRA). When it comes to employer retirement plans, like 401(k)s, it is common that employees make contributions on a pre-tax basis, which lowers their current income taxes by the amount of the contribution. Although it was not always the case with these employer plans, now many plans allow participants to make Roth contributions, which benefit from the same ongoing tax deferral as the pre-tax contributions do, but they don’t provide the up-front tax break. However, they enable you to build your retirement savings, knowing that if you meet the criteria, you will be able to withdraw the funds tax free in retirement. Many have contributed to Roth accounts over the years, even if they haven’t done so in their employer plan. There is another avenue that exists to allow you to create tax free income in retirement, and that is through a Roth Conversion, which is what we will dig into in this issue of the newsletter.

How Does a Roth Conversion Work?

A Roth Conversion provides a way to shift the tax treatment of retirement funds from being taxable to tax free upon distribution. That may sound too good to be true, but there is a cost associated with doing the conversion because the IRS does not offer anyone a “free lunch”. When you execute a Roth Conversion, you take money that had been previously untaxed, either partially or fully, and move it into an account that can be withdrawn from and not subject to income tax, assuming you have met two conditions: you are age 59-1/2 or older and you have held the account for at least 5 years. In order to make that money movement, however, you must count the amount that you moved as income in the year you executed the conversion. That recognition of income is what allows the tax treatment to be changed because you in essence have turned what had been a tax deferred investment into one where the income tax on the deposit has been paid. As a result of that, there are no taxes due on any growth that the investment gains in subsequent years. Let’s illustrate how this would work through an example.

You are 60 years old and contributed over the years $15,000 to your Traditional IRA account on a pre-tax basis, and the value of the investment has grown to $25,000. If you wanted to withdraw those funds in full, the entire $25,000 would be subject to income tax, which would be $6,250, assuming a combined 25% tax rate. On the other hand, if you decided to convert the $25,000 to a Roth IRA instead, you would need to count the $25,000 as income for that year, paying the tax on the conversion when you filed your tax return, the same $6,250 you would have owed if you took the full distribution in cash. Let’s say that you didn’t need to withdraw those funds anytime soon, and in the next 10 years, the Roth IRA had grown to $50,000 in value. If you decided to withdraw the funds in the account at that point, you would have the full $50,000 at your disposal with no additional taxes due because you paid the “toll” at the time of conversion, meaning you would have received more than double the amount of proceeds than had you left the money as a Traditional IRA.

Good Practices for Roth Conversions

When executing a Roth Conversion, it is always preferred that you plan on paying the tax due from funds outside of the investment. If you don’t make that provision and instead withhold the tax at the time of conversion, you will be starting your Roth account with a smaller amount, and will have to overcome that reduction before you start truly benefiting from the tax-free gains. Perhaps the easiest way to cover the tax on the conversion is by adjusting withholding from your existing income to account for the additional tax liability. In doing so, you will have less take home income throughout the year, but you allow all of your invested funds to remain at work and growing for you. If the amount of tax you will owe on the conversion of your pre-tax investment is too daunting, another route you can take is to perform a series of smaller conversions rather than trying to convert a much larger amount. For example, if you had $100,000 in pre-tax retirement plan assets, at a 25% tax rate, you would be looking at an additional $25,000 in taxes due from the conversion. If you instead decided to convert $10,000 per year over 10 years, you would still be converting $100,000, but you would only be increasing your taxes due by $2,500 annually, which is a more manageable figure to handle year-by-year.

Roth Conversion Strategy and Timing

Since you must pay the tax on the amount of assets you convert, it benefits you to execute a Roth Conversion on a smaller amount of assets, with the expectation that the value will grow in the coming years. If you hold a tax deferred investment, it is to your advantage to execute a conversion when the value is at a lower point. Of course, we never want to see the value of our investment drop, but a drop in the value of a tax deferred investment presents an opportune time to execute a Roth Conversion. As an example, let’s say you hold a tax deferred investment that grew to $50,000 in value, but due to market movement had declined to $40,000 in value temporarily. You can turn the proverbial lemons of the $10,000 drop in value into lemonade by converting while the value is at the $40,000 point, essentially saving yourself $2,500 in taxes, assuming the 25% combined tax rate we’ve been using. From that point forward, any growth, even getting back to the $50,000 valuation you had before, would come with no additional taxes due. A variation on this same strategy is utilizing investments that are structured such that they are expected to reassess the value to a lower amount temporarily. A good example of this is oil and gas exploration because those investments by their nature deplete the resource they are investing in during the early stages, which allows them to “write down” the value of the investment. If you can convert the asset during the period of time when the value has been written down, you can see more tax-free gain if the value goes back up again. A strategy that can be employed by higher earners is known as the “Back Door Roth”, which can be done in one of two ways, in an IRA or an employer plan. The reason it is known in this lingo is that it is a way for people whose income exceeds income limits for Roth contributions to get money into a Roth indirectly. For the IRA version of this, you would make a contribution to a Traditional IRA but not take the tax deduction, making it a Non-Deductible Traditional IRA and then convert the assets to a Roth IRA. Note that this approach has limited utility if you already own a Traditional IRA. The other option is performing a similar approach within an employer plan. As we said earlier, it is more common for employees to contribute pre-tax to their work retirement plan, but executing this Back Door Roth in an employer plan may be another option to consider. Similar to a Roth contribution, After-Tax contributions to an employer plan do not lower your current income taxes, but they are not subject to the employer plan contribution limits. The downside is that they also do not provide the tax-free distributions that you get with the Roth assets in the plan. If your employer plan allows it, a way to close that loop is to do an In-Plan Conversion, making the After-Tax contributions and subsequently converting those assets to Roth assets. If you can do either of these strategies before there is a gain in the value of the assets, you can do that conversion without increasing your tax liability.

Stewardship Emphasis
The IRS is an equal opportunity collector. You can pay them now, or you can pay them later, but you’re going to have to pay them. Be smart about how they get paid by you.

The Empowerment Channel | Volume CCXL | Dedicated to Promoting Financial Education through Stewardship

Highlights from the 2025 Version of the Tax Cuts and Jobs Act

Tue, 08 Jul 2025 15:29:09 GMT

Understanding the Changes from the Passage of Congress’s Big Bill

For an audio version of this article, click Play in the sound bar below.

Stewardship Emphasis
Sometimes you just have to live with consequences, but with knowledge and a plan, sometimes you can shape how you are affected by consequences.

You have likely heard about the legislation Congress worked on establishing as one of the current Presidential Administration’s key priorities. While there are many elements of the bill, the primary goal is, as the bill’s official name indicates, a reduction of taxes. Some tax provisions are not actually changes from the present law but extending the provisions put in place during the first Trump Administration when the Tax Cuts and Jobs Act of 2017 was passed, many of which were set to expire at the end of 2025. There has been a lot of discussion about who benefits from this new law, and as is the case for most things, it depends on your circumstances. Perhaps the biggest area of debate has been around the non-tax elements of the bill because in order to allow some of the tax reductions to be included, there are a number of offsetting reductions to government programs that could have long-lasting impact on certain constituencies of the population. To give you a sense of how these new provisions may impact you, we will hit some of the highlights of what is included in the bill and the consequences of those provisions.

Tax Provisions Affecting Individuals
If you recall, when the Tax Cuts and Jobs Act of 2017 was passed, the Federal tax brackets were adjusted, and changes were made to eliminate Federal personal exemptions while increasing the levels of the Standard Deduction. The makeup of your household and whether you were able to itemize deductions or not went a long way towards determining whether the bill improved or degraded your tax situation. With the extension of those provisions, now making them permanent, the structure of how you file your taxes in the future will be much like it has been over the last 8 years; however, some specific items have been adjusted. Even though the provisions from the 2017 law were made permanent, some items are being changed but only through 2028, coinciding with the end of the President’s term, at which point, they will revert back to the way they were before this bill passed, unless they get further extended. Those items are an increase in the Standard Deduction beyond the normal annual Cost of Living Adjustment (COLA) by $1,000 for Single filers and $2,000 for Married couples, an increase of the Child Tax Credit from $2,000 to between $2,200 and $2,500 per child, depending on the final version of the bill, an additional deduction of $6,000 for adults age 65 and over if their Adjusted Gross Income (AGI) is less than $75,000 for Single filers and $150,000 for Married couples, and exemption of Tips and Overtime earned income from Federal tax. Another temporary change included in the bill would allow auto loan interest to be tax deductible for some auto loans. Regarding the Child Tax Credit, that provision of the tax law is meant to aid families with children, but an important note is that some households may not be eligible because there is a refundability test to qualify, so those who earn lower income may not be able to benefit from the credit. A provision that was a point of controversy with the 2017 Act was the $10,000 limit placed on the State and Local Tax deduction for filers who itemized, and this version of the Act increases that limit to $40,000 for 5 years, after which presumably, it would revert back to the $10,000 level. This bill also would increase the amount of assets exempted from Estate Tax from $13,610,000 to $15,000,000 for individual’s estates (double that for couples) and make that increase to the baseline exemption permanent, still adjusted for inflation annually.

Tax Provisions Affecting Businesses
There are also provisions that are geared towards reducing tax/cost of businesses. The 2017 Act introduced the Qualified Business Income (QBI) deduction, which allows businesses that are not C-Corporations to receive a personal income tax deduction on the net income that passes through from the business to their personal tax return. Under the 2017 Act, the allowable deduction was the lower of 20% of personal taxable income or 20% of net business income, but that provision was due to expire at the end of 2025. This year’s act makes the QBI Deduction permanent but also increases the rate from 20% to 23%. Businesses are able to deduct expenses from income, but for property and equipment, they generally cannot fully write off those purchases and instead must write off their value via a depreciation schedule over a period of years. This provides businesses with a way of reducing their taxes over time even without cash being expended in years after the purchase of those assets. The 2017 Act allowed qualifying assets up to a value of $1 Million to be immediately deducted, like an expense, rather than depreciated over a period of years. The 2025 version of the Act increases the amount available for immediate deduction from $1 Million to $2.5 Million, with a reduction if the property exceeds a value of $4 Million. The 2017 Act also introduced Qualified Opportunity Zones (QOZs), which allow owners of assets who have sold at a profit to defer paying the capital gains on the sale of the asset. From the original law, the capital gains on those asset sales could be deferred until the 2026 tax year. The final details have not been fully made available, but it appears that the deferral of capital gains in the new law will extend until the 2033 tax year. The new law also lowers the limit on interest deductibility for businesses.

Changes to Government Programs
The decrease in tax revenue generated as a result of the provisions that provide the noted tax breaks is intended to be at least partially offset by reductions to spending on certain government programs. The two big ticket items where spending is being reduced in the bill are for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), both of which primarily provide support to low-income families. The way Medicaid spending is being reduced is by imposing work requirements on individuals under age 65 or those who have children under the age of 14 who would otherwise be eligible to receive benefits and perhaps beginning to charge a co-pay for patients using Medicaid services to offset expenses of the program. Those individuals who do not meet the work requirement limit would not be able to receive benefits, thus reducing the amount of spending on the program. The reductions in spending for SNAP are to be executed by requiring states to pick up some of the cost of those benefits, whereas currently the Federal government covers those costs entirely.

As is the case with most large-scale financial reforms, some people will benefit, and others will pay the cost. You may fall into one camp or the other right now, but determining how these changes will impact you is largely dependent on your specific household circumstances, so with about 6 months before these provisions begin taking hold, you can begin planning in advance so you can put yourself in the most advantageous position under the new law.

The Empowerment Channel | Volume CCXXXVIV | Dedicated to Promoting Financial Education through Stewardship

Creating More Financial Self-Reliance

Thu, 05 Jun 2025 14:29:51 GMT

Answers to Key Questions When Financial Headlines Get Crazy

For an audio version of this article, click Play in the sound bar below.

Over the past few months, we have watched a stream of headlines and announcements that seem to change on a daily basis, and you would be forgiven if you felt more than a little uncertain about what will happen next. A reality we all have to come to is that there are some circumstances within our control and many that are not within our control. Unfortunately, from a financial perspective, many of the things that we plan for because they have been standard and long-standing expectations, may not actually be things that we can bank on in the current environment we are living in. Of course, there will always be unknowns that we have to live with, but in order to plan, we have to make our best guesses and assumptions around those things. What seems different now is that some of the things we may have baked in as solid assumptions may no longer be as solid as they once were. Realizing that some of the things we may have taken for granted in the past may not be as certain as they once were, it makes sense to adjust your thinking and to take the approach of being more reliant on the things that you have greater control over. So, in this issue of the newsletter, we would like to highlight 3 areas, which build on each other, and that you have control over that can allow you to be more financially self-reliant and less dependent on outside influences to achieve what you desire.

Establishing a Mindset of Financial Responsibility
So much of what we do on an ongoing basis, financially or not, has to do with our mindset, which allows us often times to make decisions almost on autopilot. When it comes to finances, quite often the mindset we’ve established has resulted from emulating what we see that others have done or from attempting to fill in things that we might think are missing pieces in our lives. While those tendencies are common, they may or may not be the most financially healthy approaches to take. If you could create more of a clean slate for yourself and objectively look at what is the most effective way to approach your financial life, perhaps you would look at things differently than you do when factoring in all of the experiences that have shaped your approach. It may be easy to suggest not allowing your past experiences to affect your current thinking in the abstract, but it is much harder to do that in practice. Why? Because change is difficult. And it is even more difficult to change long-held beliefs, especially ones we may not even notice we hold. However, if we want to break free from the things that may have held us back in the past, one of the best ways to do that is to adopt a new mindset, and one that is rooted in sound principles that have proven to lead to success. It may not seem as fun or exciting in the moment to adopt a mindset of financial responsibility, but when applied consistently over a long period of time, that approach can position you to where you can have less worry and more control over what happens in your life. That may end up being much more valuable than some momentary enjoyment that is not sustainable.

Building Habits that Lead to Financial Success
Once you have established a mindset that lends itself to improved outcomes, what should follow from that is habits that support that mindset. Again, it can be challenging to change old habits, even negative ones, because once something has become a habit, it is second nature, and you may do it without even thinking about it. If you’ve gone the step of adopting a new mindset, you may have tackled the most difficult piece of the puzzle, so the next step is to be intentional about reforming your habits where necessary. As the saying goes, it takes 21 days to build a habit. If your existing habits have been in place way longer than 21 days, it’s likely that you will have to make a concerted effort to form new habits that will align with the new mindset you have. There are a wide variety of habits you can work on to create greater financial self-sufficiency, but it is often mastering the fundamentals that create a stronger foundation for success. Financially speaking, some of those fundamentals are things like managing your income so that you ensure paying yourself and spending less than you make, maintaining financial assets (savings and investments) that will enable you to both cover unexpected situations and fund future needs and desires, and being willing to take calculated financial risks that allow your money to work for you. If these are habits you want to build, it doesn’t just happen because you want it to. You will need to work at it over a period of time until it becomes second nature to you. If you are up for building better habits and would like a platform for doing so, we have created a system called The 90 Day Challenge that is intended to help you build habits that can last a lifetime and would be happy to share that approach with you. The idea behind the 90 days is that if you can build a habit in 21 days, if you can do something for 90 days, you will have reinforced the habit so that it becomes a part of your life.

Taking Actions to Move Your Plan Forward
Mindset leads to habits, and habits lead to actions. When it comes down to it, nothing happens until you take action on what is in your mind. What is important is ensuring the actions you are taking are in alignment with your ultimate objectives are. All plans look great on paper, but until you put your plan into action, it is little more than a paperweight. We can sometimes get overwhelmed when we look at the big picture of what we may need to do to create the success we want, so it can be helpful to take those larger plans or even actions and divide them into smaller and more manageable tasks we can visualize executing on. As we said, change is not easy, so even when you realize the actions you take can lead to a positive outcome, you have to overcome the inertia of doing what you’ve always done so you can move to a better place. Given the right motivation, you may be able to do that on your own, but quite often, it is to your advantage to engage an accountability partner to help you stick with the plan even when you may be less inclined to do so.

These three areas that you can change to be more financially self-sufficient may seem simplistic on the surface because they are things that everyone is capable of doing, but they are the “little things” you can exercise control over and make bigger positive changes in your financial life. I encourage you to look inward to see if these changes can help you take more agency in your own financial life by controlling the things you can control.

Stewardship Emphasis
You cannot control what anyone else does, but by controlling what you do, you can put more of your destiny in your own hands.

The Empowerment Channel | Volume CCXXXVIII | Dedicated to Promoting Financial Education through Stewardship

Making Sense of a Confusing Financial World

Fri, 02 May 2025 23:53:40 GMT

Answers to Key Questions When Financial Headlines Get Crazy

For an audio version of this article, click Play in the sound bar below.

The last several weeks have made what was already a jittery population more concerned than before with seemingly new headlines causing people to be nervous about both their present financial condition and their future. There are often differences in the direction policy makers go in the wake of an election, but the types of changes and the speed of them has led to an environment where many are feeling extremely uncertain about what to expect in the economic future of the U.S. and whether it can maintain its position as the world leader. One of the most prominent issues that is creating financial challenges both in the U.S. and around the world is the status of trade, which is being affected by the tariff policy proposed by the current presidential administration. That policy is having ripple effects throughout the world of finance as individuals and world leaders attempt to figure out where it will all go. After several days of bad news in the financial markets, a 90-day pause on most of the planned reciprocal tariffs was announced, perhaps giving us a short window to digest what is going on and determine how to move forward. Another issue causing concern and market disruption has been the president’s discussing the idea of firing the Chairman of the Federal Reserve (the Fed), Jerome Powell. None of us has a crystal ball to tell with any certainty what will ultimately happen, but in this month’s issue of the newsletter, we want to answer some questions that may help you understand some of the key issues at play and how you can prepare yourself for what may result from the direction the economy may be going.

What is the Real-World Impact of Tariffs?
You have undoubtedly heard a lot about tariffs in recent weeks and months, but tariffs are nothing new. Historically they have been used as a tool to strategically impact trade policy. The key word here is strategic, meaning that they have typically been used in situations where there was a specific objective, and they were implemented in a targeted way, unlike what we’ve seen in this version of tariff policy, which has been applied in blanket form. As has been widely discussed, tariffs in essence are a tax on imports, generally meant to discourage the importer from desiring to sell their product to the importing country. In isolation, that may sound like it serves the importing country well in terms of allowing it to make and sell that product to its own constituents, keeping the money “in house”. In the real world of today, very few products can feasibly be made with everything being done “in house”, so if product providers want to continue selling their products using the suppliers they have come to rely on, higher tariffs cause their process to become more expensive. If that is the case, they have a couple of choices. They can either take the hit and absorb the higher cost of inputs, or they can pay the higher cost to make the product but pass that cost on to the end consumer. In a competitive environment where profit margins are already squeezed for many manufacturers, it is more likely than not that they will simply pass the cost on to the customer, which in the end makes products more expensive. In a world where almost everyone is paying attention to the price of things and rapid inflation was a source of pain in recent years, seeing a big rise in prices after it looked like inflation was starting to stabilize is definitely cause for concern. Whatever the rationale is for the policy being discussed, the consequences are certainly being priced in by the financial markets, and they seem to be understood by individuals as well. The stock market, which is influenced by many factors and should always be looked at in context (see our March newsletter article ), has taken a hit since the announcement of the proposed tariff policy, and the question is what other shoe may drop next.

Why Does Interest Rate Policy Matter?
The discussion around the potential firing of the Fed Chair most likely was a reaction to the way the market has responded to the rollout of the tariff policy and the Fed stating that the expected impacts of the policy made the situation such that a reduction in interest rates in the near term was less likely. For context, the Fed has two primary goals they attempt to balance: keeping inflation under control and maintaining strong employment. The biggest tool they have at their disposal to manage these competing interests is setting interest rate policy. Generally speaking, if the Fed wants to reduce inflation, like they did from 2023 into 2024, they will raise interest rates in order to slow down economic growth. On the other hand, if the Fed is seeking to improve employment, they will tend to lower interest rates to spur economic growth, with the intended result of having businesses hire more people. The Fed sets targets for the Fed Funds Rate, which is the rate at which banks lend to each other. While the Fed Funds Rate does not dictate broader interest rates, the direction of movement of that rate tends to filter into how other interest rates move. Therefore, when the Fed is lowering rates, under the assumption that interest rates in general will also lower, it makes the borrowing environment more affordable, enabling consumers to take out loans, which stimulates the economy and allows businesses better opportunities to make investments to expand. Prior to the start of this presidential administration, the Fed had been on a path of lowering interest rates because they felt comfortable that inflation was trending towards their target. However, with the potential for increased inflation from the implementation of tariff policy, further lowering interest rates could create even higher inflation. On top of that, the tariff policy, if implemented in its proposed form, could put businesses in a position to decide whether they can afford to keep their staff in place, so the potential for increased unemployment is real also. The combination of those factors and the uncertainty about what will actually be implemented regarding the tariff policy make it difficult for the Fed to know whether making a change to interest rates will yield a desired result.

How Can You Prepare if a Recession Comes?
Just because the stock market has been on a rollercoaster ride since early April, that does not tell us what will happen economically in the future. What the market turbulence does indicate is that there is sentiment that the economic future of the country is in question. Outside of the policy proposals that have driven the conversation in recent weeks, from most metrics, the economy has looked to be in good shape. If the most drastic tariff scenarios play out, prices rise and stay high, and interest rates remain at their current level, which is higher than what we have been accustomed to, a recession could result. The definition of a recession is two consecutive quarters of decreased economic activity, and when there is reduced economic activity, there is a higher likelihood of job losses. Because the majority of our economic growth is driven by consumer spending, you can end up with a cascading effect and further slowing of economic activity because people have less income to spend. If a recession does come about, there are a lot of things that you cannot control, like whether you can maintain a job; however, there are things that you CAN do, which in large part comes down to implementing good foundational financial practices. Perhaps the most important of those is to beef up your savings. If your income is reduced or cut off entirely, having a source of cash to get you through that income disruption is your first line of defense. If you have already established what you would consider your target amount of Cash Reserves, it may be worth further increasing that in the near term to give yourself some added protection. At all times, but especially in difficult economic times, it is also a good idea to look at where you are spending your money and making sure you are managing your Cash Flow well. We tend to think less of this when times are good, but the better you can stretch your income, the more you will be in a position to absorb a recession. Another perhaps less used strategy you can employ is to activate sources of more passive income (see our February newsletter article ). Whether it is because of a disruption of income or because increased costs put a strain on your income, being able to tap into sources of passive income can help you bridge the gap.

In the best of times, managing your money can be challenging and confusing, so when external factors add to the difficulty, it can cause people to get stuck or worse, making poor decisions. If you can arm yourself with knowledge to understand what is going on around you and steps you can take to shore up your financial situation, you will be better for it.

Stewardship Emphasis
If you see someone starting a fire, you should do what you can to keep them from starting it, but once the fire is started, your best bet is to protect yourself from being burned.

The Empowerment Channel | Volume CCXXXVII | Dedicated to Promoting Financial Education through Stewardship

Keeping Your Finances Together in Times of Uncertainty

Thu, 03 Apr 2025 15:03:18 GMT

3 Tips to Help You Survive and Thrive Even in Chaotic Times

For an audio version of this article, click Play in the sound bar below.

The early part of 2025 has been full of surprises or at least things many people have never seen before, and with all of the change that is afoot, many people wonder about their financial security. While we probably understand that, as the saying goes, the only thing that is constant is change, it is also true that most people prefer stability rather than radical change. However, sometimes the changes going on around you force you to live outside of your comfort zone, and that is the case for many people in these times, especially for those who may not have the luxury of knowing their wealth has already set them up to be fine no matter what happens around them. It may not seem that interesting to say, but when uncertainty is swirling around you, that is exactly the time to go back to basics, and that is all the more true financially speaking. So, in this issue of the newsletter, we want to provide three tips to help you not only survive these changing times we’re living in, but also help you to come through them in a better place.

Managing Your Money Responsibly
I tend not to use the word budgeting very often because when people hear the word, they can tend to shut down because they inherently think of restriction. I prefer to think of navigating your day-to-day money decisions in terms of managing your cash flow or having a plan for how to spend and save your money. It is not one or the other, but both that are important, and what is actually most important is the part about having a plan for it. If you don’t have a plan for your money, your money will tend to go out, and you will wonder where it went. Understand, there is nothing wrong with spending your money, even on things that some people may not consider smart purchases. The thing about having a plan for how to spend your money is that you determine what your priorities are, and in doing so, you can take better control of where your money is going based on those priorities. If you have enough income to handle both your required and desired priorities, that’s great. On the other hand, if your income is more limited, you may have to make some value decisions on what is more important to spend your money on in line with your priorities. Included in your cash flow decisions should usually be some form of saving. While spending is usually more fun than saving, if you find it in you to save, you will be in better shape when those “rainy days” come. The question is not is a rainy day coming, but when is it coming? The time to save for the rainy day is when the sun is shining, so if you have the income to meet your needs and wants but still have money available to save, it is in your best interest to ensure you are setting aside something to prepare for when things are not as favorable, like is the case for many people today. Part of freeing up your income to spend and save the way you want is keeping as much money in your pocket as possible. You can do that by ensuring you aren’t paying more in taxes than necessary, even if that means you don’t get a big tax refund, which really is you getting paid late for money you earned. Finally, the more you can stay self-sufficient the better. Sure, we may need a helping hand from time to time, and there’s nothing wrong with being in that situation, but if you are financially able to take care of your needs and wants without external assistance, you put yourself in greater control of your destiny.

Firming Up Your Foundation
When the unexpected happens, you want to have provisions in place to handle those situations. Two key elements of a solid financial foundation are Cash Reserves and Insurance. I call them the 2 foundational elements of the 4 Pillars of Financial Success. Cash Reserves are important if you run into an unexpected major expense, or your income is interrupted, like many people are experiencing right now. An important question to answer is how much of a Cash Reserve is worthwhile. The answer depends on what you want that reserve to account for. Whatever that amount is, you may need to build up your Cash Reserves, which takes us back to the saving element of managing your money responsibly. The other important factor in the Cash Reserves discussion is that if you have to use it because the unexpected happened, it is incumbent on you to take steps afterwards to rebuild your reserve for the next situation that comes up. Because there will be another situation; it is just a question of when. Insurance is also a foundational piece of your financial puzzle because there are some situations, expected or unexpected, that you don’t want to have to pay for on your own. For example, if your home was destroyed, it would be impractical for you to attempt to tackle the cost of rebuilding it out of your own pocket. That would be an unexpected situation you could address with homeowners insurance. On the other hand, life insurance allows you to leave more money for the people you care about than you could reasonably save on your own. Of course, life insurance addresses an outcome that is a known situation, but what is unknown is the timing, and life insurance can remove that element of uncertainty, making sure the people you want to protect are covered. In uncertain times, there are risks that we are subjected to, and addressing these foundational pieces of your finances can reduce some of the risks you have to deal with so you can be clear minded to focus on the things most important to you.

Planning Ahead While Remaining Flexible
Financial planning encompasses addressing the day-to-day money management as well as establishing the foundational pieces that can put you on the road to financial success, but it also takes the next step of helping you prepare for the future to allow you to create your desired lifestyle. It is extremely helpful to have a plan so you can figure out what will be required for you to get from where you are now to where you ultimately want to get, but it is equally as important that once you have made a plan that you take the necessary steps to implement the plan. You also have to understand that a plan is about taking the information you currently have and making your best guesses about what the future may hold, recognizing that you may not have all of the information needed to ensure the plan is perfect. However, as you implement the plan, you will move closer to your desired destination, giving you better information to work with so that you can revise the plan as needed to achieve your desired outcome. More than likely, the desires you have will require you to have put money aside for the future you envision, so once again, we return to the importance of managing your day-to-day to save for the future. This saving is different from the Cash Reserves saving we discussed earlier in that for longer term plans, you can and should use investments that are likely to grow to help you fund your future dreams and goals. Of course, investing involves taking some risk, but historically, that risk is rewarded provided that you give yourself enough time for your investments to grow. One way of reducing that risk is by having diversification within your investment portfolio so that your fortunes don’t rise and fall based on the performance of one or a small handful of entities. While much of the investment space focuses on retirement plans, like 401k Plans, that provide an initial tax deduction and tax deferred growth, part of having a flexible plan is creating tax diversification within your investment portfolio. Whatever you do in your plan, it is important to keep an eye on whether the steps you take are moving you in the desired direction and at the pace necessary to achieve your goals. If you discover that you are off course or if your objectives change over time, the plan needs to allow you the latitude to make adjustments along the way so that as time goes on, you are honing in on the outcome you desire. Having a plan doesn’t eliminate uncertainty, but it does provide you with structure to account for the uncertainty and at the same time work towards the desired life you want.

Stewardship Emphasis
You may not be able to avoid a storm that comes, but with the right preparation, you can shield yourself from the damage it can cause.

The Empowerment Channel | Volume CCXXXVI | Dedicated to Promoting Financial Education through Stewardship

Food for Thought for Nervous Investors

Fri, 07 Mar 2025 23:22:32 GMT

How Should You View Your Investments Today?

A common question that people ask is what to expect from the stock market based on the outcome of elections. When a new presidential administration takes office, there is often a shift in policy from a prior administration, but those shifts are often incremental and may not have substantial economic impact, at least not one that overrides normal stock market fundamentals. There is much concern among investors today that the approach of the second Trump administration, which has been extremely aggressive in making significant changes, could cause a disruption of what has been a strong period of economic prosperity in the U.S., especially compared with the rest of the world. Of particular concern is the administration’s policies on imposing tariffs and the direct and ripple effects of the approach they are taking to reducing the Federal workforce. If you have been an investor for a while, it is likely you’ve seen your share of ups and downs in the markets, which is typical of how market cycles move. The question at the top of the minds of many is, will we continue to see cycles like we have historically or are we embarking on new territory. Unfortunately, it is impossible to predict what will happen in the future, but in times of uncertainty, it can be helpful to put even circumstances that have not been seen into some context. That is what we will attempt to do in this issue of the newsletter.

The Cycles of the Stock Market
If you have been investing in the stock market for a while, you probably have experienced your share of good and not so good time periods. It goes with the territory of investing that if you want your money to grow, you have to accept that risk is a part of the equation. What we tend to think of as risk is volatility, fluctuation from a smooth ride, and more specifically we think of negative volatility or downturns as the risk associated with investing. While that psychological element of fear is real, what sometimes happens is that if we’ve experienced a decent stretch of positive growth, our minds tend to forget about the downturns of the past, which makes us hypersensitive to a rough patch. However, to put the cyclical nature of the market in some context, consider that on average, there are more than 3 reductions of 5% or more in the stock market each year. While nobody enjoys those drops in valuation, it is normal. Despite the fact that those types of declines are normal, from 1928 to 2024, the S&P 500, which is what we now look at as the pre-imminent measure of the U.S. stock market, has finished the year in positive territory 71 times. That means in almost 100 years, the stock market has been up for the year more than 73% of the time. On top of that, the average annual return over those 97 years has been 11.66%. We can talk about averages all day, but the likelihood of you seeing an “average” year is pretty slim. In fact, there has been exactly 1 year in those 97 during which the annual S&P 500 return was between 11 and 12%. To further the point, of those 71 positive years, the average annual return was 20.93%. But you may ask, what about the 27% of negative years. During those 26 negative years, the average annual return was -13.65%. If you look at historical numbers within a given year, the first quarter tends to be more volatile than the rest of the year, especially between mid-February and early March, which tends to be the worst performing period of time. That has been especially the case in post-election years, during which the first quarter returns have hovered around a 1% average compared to a full year average closer to 8%. All of this is to illustrate that investing in the stock market often is going to be a choppy experience, but historically speaking, the direction of the market tends to be up if you can survive the cycles.

The Impact of Elections on the Stock Market
Let us first establish that election results have a greater impact on public policy than they do the long-term performance of the stock market. That said, public policy can filter its way into how companies spend, invest, and perform, which can ultimately impact stock performance, more so in the short-term than the long-term. Therefore, any conclusions we may attempt to draw about the impact of elections on the stock market from history are limited in that there have been a total of 24 presidential elections since 1928, not including the 2024 election. With that understanding, the general direction of the stock market between elections has been as follows:

In the first year after an election, the markets have tended to experience periods of declines, especially early on, as a new administration implements its policies but still performing reasonably well, with the average return since the 2028 election being 10.26%
The second year after the election, which is when mid-term elections occur, tends to be the weakest for the markets, often with increased volatility, with the average return since the 2028 election being 6.97%
The third year after the election, during which candidates for the upcoming election throw their names into contention, often shows the strongest performance, with the average return since the 2028 election being 17.64%
The fourth year after the election, or the year of the next presidential election, has seen a variety of outcomes as the markets react to the potential for changes in policies, with the average return since the 2028 election being 10.42%
In addition to the outcome of the presidential election, another important consideration is the makeup of Congress vs. the White House. In past history, it has been more common that not that stock market performance has not been as strong when there is single party control of both the presidency and Congress, which is what we have following the 2024 election.

Do We Believe History Repeats or Is This Different?
We can look at all of the past statistics we want to, but the past cannot predict what will happen in the future. While there are often concerns about how the policies of a new presidential administration will impact the economy and the markets, the concerns about this presidential administration may be more pronounced than others. That is in large part because of the nature of the policies being discussed and the speed with which many of these significant changes are being implemented, along with the way the administration has sought to increase the power of the presidency without any substantial pushback from the Congress, which could exercise its own authority but has not up until now. This inevitably leads to the question of whether this time will be different than what we’ve seen in the past. There have been other circumstances in the past that have called into question whether historical trends would hold true or not, particularly in the recent past. Let’s look at three examples to see how the wisdom of the day played out.

Example 1 - The Technology Boom
Near the end of the 1990s, technology stocks were the hot commodity, driving stock prices to levels not seen in many years. At the end of 1998, the S&P 500 had averaged more than an 18% return over the past 15 years, and the Price to Earnings (P/E) Ratio (P/E) of S&P 500 stocks was at its highest point since 1998, indicating stocks were as expensive as they had ever been. Historically, when stocks get more expensive, there is a greater chance of a market correction, but many were claiming at the time that because of the technology boom, the trend would continue. In the following 4 years, the S&P 500 averaged a return of 0.35%, which included the protracted recession from 2000 that didn’t end until 2002.

Example 2 - The Global Financial Crisis
Most investors remember the pain of 2008, kicked into high gear when Bear Stearns, one of the world’s largest investment banks, folded. At that moment, we knew pain was coming, but the seeds of it were beginning to be seen in 2007, and the market reflected that with a paltry annual return of 5.48%. As the crisis came to a head towards the end of 2008 and the beginning of 2009, investor anxiety may have been as high as ever, and pundits were contending that a market bounce back was not going to happen anytime soon, defying history that has shown the resiliency of the stock market. In the following 4 years, the S&P 500 averaged a return of 25.56%, as part of an extended bull market that continued for more than a decade

Example 3 - The COVID Pandemic
A recent shock to the global economy was the outbreak of COVID-19 that essentially shut the world down for an extended period of time starting in March of 2020. Because economic activity came to a screeching halt, and it was hard to determine when the pandemic would be under control, the stock market took a massive dip, with the S&P 500 experiencing more than a 24% drawdown in about 3 weeks in March. At the time, the fear was that the abrupt disruption in economic activity would do major long-term damage to the markets. However, by the end of the year, the S&P 500 was more than 26% above where it started in March, and by the end of 2024, the S&P 500 averaged a return of 10.26% over the prior 4 years.

So, on the question of whether this time is different, nobody knows. What may seem like stock market disaster waiting to happen can turn on a dime, in large part because despite all of the external circumstances that create anxiety in the minds of investors, the stock market tends to operate on the performance and expectations of the businesses that make up the economy. Only time will tell whether the concerns being felt today will lead to long-term negative consequences. As is always the case, you should make investment strategy decisions based on your personal circumstances and objectives, not based on the opinions and fears of what may or may not happen.

Stewardship Emphasis
Getting caught up in the moment and operating out of fear can lead to decisions you wouldn’t make under normal circumstances.

The Empowerment Channel | Volume CCXXXV | Dedicated to Promoting Financial Education through Stewardship