Consumers should be smart with money considering the deficit

The huge deficit’s effect

The federal government made an announcement that the deficit for fiscal 2020 will reach $1 trillion. For years now the government has made predictions on the deficit, making it higher and higher every year. Though consumers hear it, they don’t always know how to interpret it for their own situations. Here is a listing of some of the alterations a huge deficit is going to make in consumers’ lifestyles.

Some tips to handle deficits of the future

The reality is that huge deficits pose problems for everyone. One of the problems is going to be with long-term bonds. There are two ways to handle deficits: issue long-term bonds or print money. Both can create inflation and a financial climate that is difficult for everyone to manage. It’s the long-term bonds that are posing the most risk for consumers in the future. If inflation rises, that causes everything to rise in cost. The strain on consumers can be unbearable.

Another issue is that a huge deficit has to be financed by those who save in emerging markets like China. Unfortunately, those emerging markets are in the midst of their own inflation and that can have a detrimental effect on how much saving they can do. It may mean that interest rates will have to rise in this country to make investors want to keep money in the US.

There is also the fear of further loss in value of the American dollar. Experts caution that US investors should be wary of diversification. There should be a reasonable amount of investments in overseas stocks and bonds to maximize returns. Relying solely on the American economy could prove to hamper any big improvements in investment revenue. Investors should consult with their financial advisor to assure their portfolio has a wide enough range to be profitable over the long run.

Consumers also should secure a 30-year fixed rate mortgage on their properties. The interest rate is closely tied to the rate on 10-year treasury bonds. Those are expected to rise and that means that sooner or later, so will rates on mortgages. Getting locked into a reasonable mortgage now will be a huge advantage for consumers in the future. Because of the recession, interest rates are at an all time low and anyone with the desire to refinance or buy a home should take advantage of low rates.

Finally, using tax shelters is one of the most important tools consumers can use to protect their money when deficits rise. Putting as much money as possible into a 401k or 529 college savings fund can help to protect finances. The future of huge deficits means that the government will have to find money from somewhere. That means most likely taxes will increase and having money stored away in tax shelters can mean the difference between losing money to taxation and saving it for life’s necessities.

Careful financial planning for the future

The huge deficit means future problems for consumers who aren’t aware of their options and who don’t take considerable pains to change their ways of managing money. It isn’t difficult, but it does take some determination and focus for consumers to maneuver the raging waters of today’s financial climate. With careful planning, however, consumers can assure that their financial futures will be secure.

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