In the past few years, it feels like the world is stuck in a loop of perpetual crises. And affordability has suffered.
Many people’s budgets are getting tighter as their spending increases, and they are taking on more debt. Meanwhile, owning a home still feels out of reach for many young people, no matter how hard they try to rein in their spending, get a better job, and boost their savings.
In short, the future feels even more uncertain than it usually does. So, what do you do with your finances when uncertainty is the name of the game?
For example, it can be tough to know what to prioritize if you have a bit of extra cash: do you pay off part of your debt, invest the money, or focus on building up an emergency fund?
According to certified financial planner Douglas Boneparth, you have to look at the math.
“If your [loan’s interest] rate is above 6%, using your extra money to aggressively pay down your debt is compelling. That’s because paying it off sooner likely will save you more in interest payments than what you’d earn if you invest the extra money in the market, where it’s hard to consistently get a return over 6% without taking risk,” he told CNN.
“If, however, your rate is below 5% and you’ve got an emergency fund in place, investing the extra money (especially in tax-advantaged accounts) may serve you better over the long-term,” Boneparth explained.
From his perspective, however, you should prioritize extra funds toward building an emergency fund (whether 3, 6, or 9 months) first, without exception.
“Next, contribute enough to your workplace savings plan to capture any employer matching contributions, because that’s free money,” the expert told CNN.
“If you’re all set on both those fronts, and your loan’s interest rate is above 6%, use your extra money to attack your debt aggressively. Rate below 5%? Consider investing it. If your rate is somewhere between 5% and 6%? Split it! Put some of your extra money toward loans and some toward savings or investment.”
If you’re worried about gas prices, barring a handful of very quick miracles, they’re unlikely to ease in the near future. Affordability, already a top issue for many people, will remain problematic.
According to CNBC, “gas prices have been elevated ever since the start of the Iran war, and little relief is expected ahead of the midterm elections on Nov. 3.”
“Speculators on prediction market platform Kalshi give an 87% chance that the AAA national average for gas prices will remain above $4 per gallon on Nov. 3. But while they expect prices to stay above that mark, they do think there’s a chance they’ll come down from the levels where they currently are, giving just a 42% chance the average is above $4.25 on Election Day. As of Thursday, the national average is currently at $4.36 per gallon,” CNBC writes.
