On a micro level, you can directly control many personal finance decisions. For example, you can become a savvy shopper to locate the lowest price on what you want, and develop a budget that fits your lifestyle and income parameters.
[READ: What Is ‘Lifestyle Creep’ and Should You Try to Avoid It?]
By making conscious borrowing choices, you can avoid consumer debt and even make money from rewards credit cards. However, some macro-level factors can affect your money today and in the future.
Here are seven major national and economic issues that can impact your personal finances — and tips regarding what you can do to mitigate them.
1. Interest Rates
The Federal Reserve sets the federal funds rate, which is the interest rate banks charge each other for short-term loans. When it goes up or down, your personal finances can get a boost — or take a hit.
“If you have a variable rate loan or you need to borrow today with a new loan for your car or home or just need to finance a purchase, the cost will be higher,” explains Teri Williams, president and chief operating officer of OneUnited Bank, headquartered in Boston.
“When interest rates are high, you’re sending more of your money to the bank and will have less for the necessities of life because the borrowed funds cost more,” she adds.
So, what can you do?
Keep your credit scores high with on-time payments and low revolving debt so you can borrow money with the best terms.
On the other hand, higher interest rates mean you will earn more on your savings. Check out high-yield savings accounts and certificates of deposit for storing your emergency cash and other short-term funds
“Consider longer term CDs,” Williams says. “If the rates go down you will lock in the higher rates now, which will give you more interest income.”
2. Inflation
When the cost of goods and services increases, your purchasing power wanes.
The Federal Reserve’s Federal Open Market Committee attempts to stabilize prices by setting monetary policy. Still, the Federal Reserve Bank of Dallas reported that prices surged by 7.1% from November 2021 to November 2022.
As an individual, you can’t control inflation, but it can dramatically affect the way you spend and save. Even small price hikes can be tough when your cash is already stretched thin. It means you have to spend a greater proportion of your earnings on basics like food and gas, which tend to be hit hardest by inflation, leaving less for extras.
To deal with inflation, make sure your budget is flexible. It’s always a good idea to be financially conservative by spending less than you earn.
Build an emergency savings account so you can dip into it if necessary. Also, be highly conscious of your shopping habits, seeking out the best deals so you don’t spend more than necessary.
[READ: Best Discount Shopping Apps]
3. College Costs
Higher education is no minor expense. Each year the price escalates, too.
According to 2023 CollegeBoard research, the cost rose between 2.5% and 4% from the previous year, depending on the type of school — and that doesn’t account for inflation.
The good news, says Regina McCann Hess, a certified financial planner and president of Forge Wealth Management in Malvern, Pennsylvania, is that there are colleges that fit many income brackets.
The most expensive school is not always the right choice, so open your mind to what you can afford.
A Parent PLUS loan you can make up the difference in how much you pay with savings and the amount your child can cover with financial aid, but be prudent, Hess says.
“With a PLUS Loan, the interest rates are higher than federal loans your child takes out and it starts right away,” she adds. “People don’t see it coming and they get whiplash.”
4. Unemployment
It would be nice to have a steady job that you can always count on, but positions and employers come and go.
Some years are particularly brutal. In 2023, companies planned 721,677 job cuts, a 98% jump from 2022, according to the December 2023 Challenger Report from the professional outplacement firm Challenger, Gray & Christmas Inc.
Because layoffs can be part of life, Hess advocates for a proactive approach.
“Make sure your network is strong and keep up your LinkedIn profile,” she says. In the event you get laid off, you’ll be ready.
“Put your feelers out. Ask other people if they know anyone who is looking for the kind of a role you do, but also be open to new experiences,” she adds.
Take action to build your employability, especially while you’re still working. You may take this time to earn an advanced degree, or enroll in a certificate program to gain practical training in a certain field.
“You can’t stop layoffs from happening, but you can be prepared to pivot,” Hess says.
5. Housing Markets
Home prices fluctuate for a variety of reasons, from shifting desirability of a neighborhood to interest rates.
Christopher Naghibi, executive vice president and COO of First Foundation Bank in Irvine, California, acknowledges that consumers who want to purchase homes can’t change those facts, but they can become savvy and flexible buyers.
Even when housing prices are high, Naghibi says becoming a homeowner is not as impossible as it can feel.
Explore first-time home buyer programs and cast a wide net. When you can’t afford your dream home in your ideal area, broaden your search and be willing to compromise.
“I routinely tell people to buy what you can, and don’t try to time the market,” Naghibi says. “Over the long term real estate values go up, so hold on for at least seven to 10 years.”
Arm yourself with knowledge and employ strategies to keep your monthly payment down, such as increasing your down payment.
If you’re not in a rush, Naghibi suggests getting your own real estate license, which can take three to six months and cost a few hundred dollars.
“You’ll learn real estate finance, appraisals, and principals, so when it comes time to buy, you’ll know much more and can use the commission for your down payment,” he says. “That’s how I bought my home!”
6. Stock Market Fluctuations
Investing in stocks can be a great way to earn passive income. However, stock prices change based on supply and demand.
When more people want to buy shares, the stock price increases, so the value of your investment rises, but when fewer people want to buy, the shares lose their value and you can lose money.
While it’s impossible to know which company stock will rise and fall and when, you can reduce risk with a measured, long-term approach.
“Investing can be scary for lot of people because it can seem too random,” Naghibi says. “You can reduce your anxiety with low-cost index funds that are based in the S&P 500. They’re the best-performing companies on the stock exchange and you’re betting on them to grow over time.”
7. Taxes
Individuals have no influence over federal tax laws — that’s up the government and the Office of Tax Policy. Rules concerning credits, deductions, and tax brackets are all out of your hands.
[READ: Tax Write-Offs You Shouldn’t Overlook.]
However, you may be able to legally reduce your tax obligation.
For example, you can lower your taxable income by contributing to a tax-advantaged retirement plan like a 401(k), opening a health savings account if you have a high-deductible medical plan and donating to qualified charities. If you save for college with a 529 plan, you may be able to deduct your contributions from your state income taxes.
With the right strategy, you may be able to reduce your taxable income to avoid being taxed at a higher rate.
Focus on What You Can Do, Not What You Can’t
It’s easy to become frustrated with external forces, especially when they affect the amount of money you have to spend today and save for tomorrow.
Identify the controllable factors, though, and concentrate on them instead. There is almost always something you can do to offset a potential problem and minimize the impact of one that may be looming in front of you.
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7 National and Economic Issues That Could Affect Your Financial Well-Being originally appeared on usnews.com
