How to keep on top of your personal finances in a growing economy


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The economy has shifted into high gear, with corporate profits surging, bankruptcies and foreclosures tumbling and the national unemployment rate easing to 3.8 percent, an 18-year low.

Americans have become more optimistic, but their personal finances don’t necessarily mirror the economy’s progress. The latest assessment of household financial health by the Federal Reserve, released in May, shows “many signs of growth and improvement, along with remaining pockets of distress and fragility.”

Has your own financial status climbed to near an all-time high? If not, here are some actions worth heeding:

Find a better, and steadier, job

With unemployment so low, now might be the time to find a new job if you can, while the getting’s good. That low 3.8-percent rate masks a darker secret — a lot of jobs pay poorly or feature irregular work hours or other undesirable qualities. Three in 10 adults have unsteady income, according to the Fed survey, which included responses from more than 12,000 Americans.

About 10 percent of adults rely on financial support from people outside their households, including one in four adults under age 30. Middle-aged parents often are the ones providing such assistance. Many Americans now supplement their incomes with part-time jobs from cleaning houses to driving for ride-sharing companies like Uber.

Incidentally, while roughly half of workers said they received a pay raise last year, only 18 percent said they asked for one. With available workers in relatively short supply, now’s the time to make such requests.

Build up a cash cushion

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The root of many financial problems is the lack of cash in reserve. People who can’t meet emergency or unexpected expenses often respond by running up credit-card balances, taking out other costly loans or draining retirement accounts. Only 45 percent of respondents in the survey said they didn’t carry any credit-card balances from month to month last year.

People tend to draw down their cash reserves during recessions, while economic expansions are normally good times to build them up. Yet four in 10 adults, in the latest Fed survey, said they would have trouble meeting an unexpected expense of just $400 — even at a favorable point in the economic cycle. One in five adults said they couldn’t pay all their monthly bills in full last year, and one in four said they skipped needed medical care last year because of an inability to pay for it.

Americans have reported improvement in saving money and paying bills, as 50 percent of respondents in a 2013 survey indicated they would have trouble meeting a $400 payment. Still, the percentage who would struggle to come up with $400 is alarming given that financial advisers recommend that people try to accumulate enough cash to handle at least three months of living expenses. American households spend about $45,000 a year on average, according to the Bureau of Economic Analysis. That suggests people should have at least $11,000 or so in savings, not $400.

Get your banking in order

The latest Fed survey suggests more Americans are tying into the banking system. That’s good because bank and credit-union customers tend to be more financially fit, partly because they get better deals on financial services.

Some 95 percent of respondents in the survey said they have bank or credit union accounts. However, some of these people are “underbanked,” meaning they have traditional accounts but also utilize costly alternatives such as check-cashing or advance-payment services or pawn-shop or auto-title loans.

Combined, the proportion of unbanked or underbanked respondents has eased to 23 percent, down from 29 percent in a 2015 Fed survey.

At any rate, now’s a good time to sign up for free checking accounts and shop for credit cards that offer lower interest rates, don’t charge annual fees and have attractive reward programs. With credit plentiful now, this also could be the time to refinance a mortgage, though interest rates aren’t as low as they had been a couple years ago.

It’s also smart to sign up for banking services that can help you save more or cut down on fees. In the latest Fed survey, 62 percent of respondents said they pay at least some bills automatically (reducing postage costs and possibly avoiding lost or stolen checks), and 52 percent have signed up for alerts to notify them of low balances, suspicious payments and so on. Also, 46 percent said they save automatically by having money transferred from paychecks or checking accounts into investments.

Improve your retirement preparations

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The survey didn’t divulge many new revelations when it comes to retirement planning. A lot of Americans still haven’t made adequate preparations, including the one-quarter of working-age adults who say they don’t have any retirement savings or pensions. To improve on that, get started with a savings plan, increase your contributions, utilize tax-sheltered accounts, make the most of employer matching funds and educate yourself about how various investments work.

One worrisome finding from the report is that many people continue to retire at early ages. Of respondents who were retired last year, half said they quit working before 62. Another quarter retired between 62 and 64.

Many retirees said they stopped working for health reasons or because of an inability to find jobs. Nevertheless, delaying retirement by even a couple years, if possible, can make a huge difference in bolstering financial readiness. When people delay, they can hold off withdrawing money from investment accounts, giving those balances more time to grow. They also can push back the start date for taking Social Security benefits. That’s important because monthly benefits rise each year a person delays (to age 70).  

It also helps to reduce “leakage” in your retirement funds while you’re still working. According to the Fed survey, 5 percent of working-age respondents borrowed money from their accounts last year, 4 percent permanently withdrew funds and 1 percent did both. People who tap their accounts early damage their finances and are less likely to view their retirement planning as on track.

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.

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