■ Schmidt Foundation

Hard times never last: Plan your financial recovery

Hal Bundrick | NerdWallet

It feels as though we’re facing a hard time of extremes. Floods classified as 1,000-year events on top of record heat. Prices are rising due to the worst bout of inflation in four decades. A lingering global pandemic that still impacts daily life.

Many of us are in urgent need of a financial fix. Cash is low, and costs are high.

Solet’sduckintoaquietcornerandstartthe healing process.

Mute the mania

First, let’s consider the noise we’re facing. Tragic global events are a smartphone notification away. Our social networks are relentless. Humans have never been bombarded with so much instant information — viral or otherwise.

It’s OK to mute the mania. Reduce or eliminate those news alerts. Set some screen time limits on your most distracting apps. Allocate some phone-free time blocks in your day.

Instead, prioritize your personal situation and current needs rather than bearing the weight of the multitude of planetary problems. You can get to those later.

In the meantime, here are a few ways to regain your financial sanity.

Examine recent spending

First, take a hard look at your cash flow. Money in. Money out. The quickest way to build financial security — and your peace of mind — is to have a nice chunk of cash left over every month. To do that, you’ve got to know where your money is going first.

Sofar,inflationiscostingusanextra$1,000a month. That’s a national average, but no wonder we’re allfeelingalittlestretchedrightnow,right?Like everyone else, I’ve been cutting extra expenses to try and get some of that money back: n I cut a couple of software subscriptions I could do without. n Then, I nixed TV subscriptions and leased equipment fees that I didn’t need. (I can always churnthestreamingservicesbyrenewingone subscription while canceling another when a provider launches a show or two I’m interested in.) n I stopped ordering so much meal delivery and cut back on dining out. Extra benefit: lost a few pounds. n Istucktoashoppinglistatthegrocerystore instead of walking every aisle and grabbing a bunch of stuff I didn’t need. n I’ll also call every credit card provider I have and ask for a lower interest rate. I don’t plan to be carrying any balances with them, but it’s a good time to ask for a rate break. And having lower rates is useful if I should need to rely on credit cards in an emergency.

Going line by line over every expenditure I made recently, I found enough to save a few hundred bucks every month. It felt good. Little financial behavior modifications can recharge your spirit.

I’m also hoarding that extra cash and then some.

Don’t skew your view

“Mortgage rates are the highest they’ve been since 2009.” “Nasdaq records its first five-week losing streak since 2012.”

Those kinds of headlines can distort our perspectives.

“Stocks slide to the lowest since March 2021,” a headline published about four months ago said. Stepping back to see the bigger picture of stock markethistory,that’sjustablinkofaneye.But modern news-by-the-minute media is training us to think in tiny time steps.

I saw another headline that said, “Why ThisStock is soaring today.” And the next day: “Why TheSameStock tumbled today.” That’s short-fuse news.

True perspective requires a view longer than simply when something happened last.

Remember, this is just another life cycle

A lot of things we worry about have been higher or lower.

“I wish we had bought a house when mortgage rates were 3%.” Or bought Bitcoin when it was $300. Remember when gas was under $3? Under a dollar?

This stuff can boil the juices in your digestive system if you let it.

It goes the other way, too. Maybe you bought Bitcoin near $69,000 late last year. Now it’s close to $20,000. Ouch.

If you think mortgage rates are high at 6%, remember that perspective thing. The average rate for a 30-year mortgage over the last nearly five decades is just under 8%.

People still bought houses when money was expensive. Ask someone who bought a house when rates were in the teens. I did. In years past, I’ve had double-digit interest rate mortgages. But when rates fell, I refinanced or bought another home with a lower mortgage rate.

When and why you might want to open a CD

By Spencer Tierney | NerdWallet

The year 2022 has not been kind to our wallets. But amid rising prices (i.e., inflation) there’s at least one perk: Savings account rates have increased, including on certificates of deposit.

Some CDs have returns upward of 3% right now, but likeanybankaccount,theydon’tworkforevery financial situation. Let’s see if CDs make sense for you.

CDs that hold money, not music

If you came to this article thinking of a CD as a compact disc for music, I apologize — but good luck with your old-school music collection.

In banking, a CD refers to a certificate of deposit, which is a type of savings account that has a fixed term and fixed interest rate. You add money, wait for the CD’s term — usually three months to five years — to end, and get your money back with interest.

The main places to open CDs are banks and credit unions, which are banks’ not-for-profit counterparts. Credit unions tend to call CDs “share certificates.” Brokerages also offer CDs, but the process is more complicated and requires an investment account.

CDs: The good, the bad, the penalty

The good

Here’s the biggest reason to consider CDs: They can offer the highest guaranteed returns for a bank account. And current CD rates are some of the highest in a decade, based on NerdWallet analysis of Fed data and its own data. When the Federal Reserve raises its rate, as it has multiple times in 2022, banks usually raise their savings and CD yields.

Hands down, the best rates are at online-only institutions. At the time of writing, you can find rates for one-year CDs above 2.3% annual percentage yield, three-year CDs above 2.7% APY and five-year CDs above 3% APY. The national average CD rates, in contrast, are below 0.70%, which is still better than the national average of 0.13% on regular savings accounts.

Take this scenario: Put $10,000 into a CD at 3% for a five-year term, and you’ll earn around $1,600 in interest. Try that same amount and time frame but in a savings account with a 0.13% rate, and you’ll earn about $65. I’d choose the first option.

Unlike some checking or savings accounts, CDs don’t have monthly fees or minimum balance requirements other than a minimum amount to open. High-yield CDs have minimums that range from $0 to $10,000.

The bad

CDs are the bank account equivalent of a lockbox. In exchange for high rates, you give up access to funds.

If you need to cash out a CD early, well, it might hurt. You must withdraw all the money in one transaction and almost always pay a penalty that can cost several months’ to a year’s worth of interest you earned — or would’ve earned. A bank can dip into your original amount to cover a penalty. Unlike other bank accounts, though, CDs only have this one potential cost, and you can avoid it by waiting for a CD to mature.

When would CDs work best for me?

CDs have more specific use cases than your everyday checking and savings accounts. Ask yourself any of these questions before deciding to open one. 1. Do I need more distance from some savings?

Say you come into an inheritance or other type of windfall; or you’ve built up savings for years; or, you’re like my parents who — as I grew up — put some savings in a share certificate to keep it out of reach. Whatever the reason, a CD is built to keep you from being tempted to spend those funds. 2. Do I have savings earmarked for a big purchase?

Ifyouhaveasumintendedforacarordown payment on a home in the next few years, a CD helps you set aside the funds until you’re ready. 3. Do I want to protect some wealth outside of investments?

CDs provide short-term safety, not long-term growth. Funds are federally insured as they are in other bank accounts, meaning your funds get returned to you even if a bank goes bankrupt. CDs also don’t have the risk of fluctuation in value as in the stock market.