Your Financial News Roundup
December 21, 2022
This is our last newsletter for the year. Thank you for all the support and feedback!
We’ll catch you in January 2023.
TL;DR
1. Economy: Last week, the Fed raised interest rates by 0.5% and says future hikes are on the table; if passed, new proposed 401k rules would help increase your retirement savings.
2. Tech: FTX Co-CEO Ryan Salame alerted the Bahamas regulator on SBF’s misuse of customer funds prior to the company’s bankruptcy claim; Microsoft and Viasat team up to bring the Internet to 10M people.
3. World/US: China’s reopening caused an infection surge and worker shortages; El Paso’s mayor has declared a state of emergency over rising numbers of border migrants.
Weekly Finance Concept [Part 2/6]: Should You Pay Off Debt or Save First?
Our Take
…on how the news impacts you and your wallet
1. Economy: The Fed’s sharp interest rate hikes have increased the cost of borrowing money for individuals and companies alike. As a result, people slowed down their spending and companies downsized through layoffs — adding to unemployment and increasing recession risk.
2. Tech: The FTX blowup will push mass crypto adoption back by several years. As the latest in a series of high-profile crypto blowups, the FTX scandal has made the public distrustful of the crypto space and permanently turned some people off from it.
3. World/US: U.S. inflation is partly caused by China’s lockdowns, which have affected the global supply chain. As China reopens, it will help lower inflation in the U.S. and abroad. But China’s demand for oil will rise, leading to a rise in global energy prices.
Economy
🏦 Fed Rate Increase: Last week, the Federal Reserve raised interest rates by 0.5% as expected and has indicated they would lower the pace of their rate-hiking program. November’s inflation report shows a level of 7.1%, its lowest reading in over a year. However, inflation remains high due to rising energy and food prices, among other factors. The Fed anticipates 2023’s unemployment rate to be 4.6%, above its current level of 3.7% — meaning hundreds of thousands of people would be jobless. The Fed admits that its actions will bring pain by raising unemployment, but insists that rapid inflation poses a larger danger to the country. Expecting lower growth, investors are favoring bonds due to their more stable returns. (Source)
💰Your 401(k) is Changing: Concerned that not enough Americans save for retirement, Congress has introduced retirement account reforms via the SECURE Act 2.0. Currently, 57M working U.S. adults, or roughly half of working-age Americans, do not have access to an employer-sponsored retirement plan. Some of the proposed reforms include automatic enrollment into a 401(k) plan and allowing the use of contributions to pay off student loans or to build an emergency fund. You could also use an in-plan insurance option to ensure you have enough funds throughout your retirement. With this new package, Congress seeks to close the savings gap and prevent a future failure of social safety nets. (Source)
Tech
🦹♂️ FTX Insider Betrayal: During last week’s bankruptcy filings, it was revealed that FTX Co-CEO Ryan Salame had tipped off regulators in the Bahamas about potential fraud committed by Sam Bankman-Fried (SBF) prior to FTX filing for bankruptcy. This move makes him the first known turncoat from FTX. Salame alleges that SBF was 1 of 3 people who had access to move customer funds from FTX to Alameda Research — SBF’s hedge fund company. SBF faces criminal charges for fraud, misuse of customer funds, and money laundering and is seeking favorable terms for extradition to the U.S. (Source)
🔌 Internet for the Masses: Globally, half of the population does not have Internet access, and more do not have quality access to it. Microsoft and satellite-based Internet provider, Viasat, are teaming up to provide Internet access to 10M people worldwide, including 5M people in Africa. Viasat will work with Microsoft’s Airband program, which seeks to extend Internet access to 250M people by 2025. One of several tech firms working on this issue, Microsoft has already extended Internet access to 51M people. Getting more people connected helps enable telehealth, education, farming, and other opportunities in underserved areas. (Source)
World/US
🇨🇳 Reopening Challenges: China’s sudden reopening has been met with a rise in COVID infections and new economic challenges. Workers in warehouses and offices alike are testing positive for the virus, creating staffing shortages and bottlenecks. Plus, there’s a shortage of medicines to treat COVID symptoms that is expected to last ~1 month. China Economist Ting Lu states that the reopening will cause a surge in infections, especially with travel around the Chinese New Year in late January, which may offset the positive impacts of easing regulations in the near term. For now, the COVID spread and below-freezing weather have kept many people from socializing, primarily in large cities. (Source)
🇺🇸 Border Challenges: Last week, the U.S. lifted Title 42, a pandemic-era health order that turned migrants back from the southern border. El Paso Mayor Oscar Leeser expects an increase in migrants as Title 42 expires and has issued an emergency declaration to provide extra resources. The upcoming below-freezing evening weather will threaten migrants’ well-being and strain El Paso’s resources otherwise. The city’s plans include opening an emergency operations center, using extra facilities to house migrants, and requesting additional support from the state. The city has also asked for help to bus migrants to other parts of the country as federal estimates predict the number of migrants could grow from 2,500 to 6,000 per day. (Source)
Finance Concept of the Week
Setting Yourself Up For Financial Success — Part 2/6
Should You Payoff Debt or Save First?
If you are tight on cash, you may have to make a difficult choice between saving money for emergencies or paying off high-interest debt.
The Argument For Saving First
While you may be tempted to pay off your debts as soon as possible, stashing away a sizeable emergency fund can provide financial security during tough times, such as job loss or car repairs. Knowing that you have money set aside for unexpected situations can also give you peace of mind and reduce stress as you focus on more pressing issues.
The earlier you start saving, the more time you have to leverage the power of compound interest. Compound interest is the interest you earn on your interest gained from depositing money into a high-yield savings account like Marcus by Goldman Sachs, investment portfolios, bonds, etc.
Waiting even 5 or 10 years to start saving can make a significant difference in your wealth trajectory. For example, if you set aside $1,000 today in an index fund like VOO or SPY, 20 years from now, that $1,000 would be worth ~$3,869.68. However, if you wait 10 years before investing the $1,000, you would only have $1,967.15, a nearly ~50% reduction!
The Argument For Paying Down Debt First
If you have a lot of high-interest debt, that can prevent you from achieving other financial goals as your debt snowballs. In particular, most credit cards come with high-interest rates, sometimes upwards of 26%. So, the longer you wait to pay off your balances, the more interest your debt will accrue.
Aggressively paying down high-interest debt makes it more manageable and can also improve your credit score, which lenders use to gauge your riskiness as a borrower. The higher your credit score, the more likely you are to qualify for better financial products and terms.
Additionally, carrying large balances can be extremely stressful and feel like a huge weight on your shoulders. Focusing on tackling debt can remove this emotional burden and free up your mind to focus on achieving other goals.
Even Better — Balancing Both
The best strategy is to simultaneously tackle high-interest debt while saving money, which is possible through careful budgeting and planning. Review your monthly expenses and categorize your wants and needs. Look for areas where you can cut back or eliminate certain expenses to reallocate the money towards saving or paying off debt.
By doing both simultaneously, you can set a better financial foundation and pay the way toward financial security and freedom.
Tip of the Day
💵 Holiday Money Hack: Instead of purchasing material gifts, consider giving experiences or homemade gifts like festive decorations, candles, or photobooks. Not only will this reduce the financial burden of the holiday season, but you can also create custom gifts for loved ones.
#Oof
Recommended Resources
- 18 Credit Card Hacks to Up Your Financial Game (Finance Futurists)
- How to Take Advantage of a Roth-401(k) (CNBC)
- All-In Podcast: Doxing Debate, Nuclear Fusion, Markets (YouTube/All-In Podcast)
- How to Handle Taxes from Venmo, PayPal Payments (CNBC)
- How to Navigate Holiday Spending and Traditions (Kiplinger)
- Analyzing the News That Broke 2022 (Morning Consult)
Personal Finance Resources
🚀 We recently launched a curated collection of personal finance resources on Gumroad, featuring both free and paid options! Visit us for all your personal finance tracking needs, including:
Stay tuned for updates! In the meantime, if there’s any other product you’d like to see, feel free to suggest it here.
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