It has been a long time since we have been in a rising interest rate environment and common questions arise as to how to best react especially given the volatility of the equity markets etc.

Certainly, if you have credit card debt, you have seen the interest rates creep up on those balances and your first goal should be to rid yourself of that debt as quickly as possible. However, what if you have no credit card debt but have a mortgage, car loan, etc. at very favorable fixed rates. It is not uncommon for folks to have 30 year mortgages at 2.5% and auto loans at 1.9% etc. Should you pay extra on those to pay them off earlier?

The quick answer is no. Rising interest rates also mean a better return on your money. It is likely you can find CDs (certificates of deposit) with interest rates higher than 3%. This means you will get a better return on your money from the CD savings than you would by paying down debt with a favorable interest rate.

As interest rates continue to rise, so will savings rates and the arbitrage rate (savings rate – debt rate) will only improve over time. If you look beyond CDs to bonds or dividend yields, the situation gets even better.

To sum it all up: KEEP your very low interest rate loans and take advantage of rising rates of return on investments to maximize wealth.

So the Fed is raising rates quickly. What does that mean to you?

Basically, debt just got more expensive and harder to get. If you carry a balance on credit cards, the rate has likely jumped 2% or more. Mortgage rates that were 2.5% just a few months ago are now at 5.7% and new auto loans are now more expensive. Rates will continue to climb.

Why is the Fed raising rates so much so quickly?

The Fed is trying to put the brakes on inflation. To do this, they need to severely curb the money supply. They do this by raising rates and this will slow the economy. The hope is to take the economy to edge of recession without actually creating one. Historically, this has been difficult to do.

Why did the Fed take so long to act?

The fed deemed some inflation to be fine to get the economy jump started coming out of the Covid era. The Fed’s failure to act quickly coupled with the government over stimulating the economy has led to the inflation we see today. The “fix” won’t be easy and will certainly be painful for many.

So what should I do?

Avoid taking on new debt, eliminate consumer debt if you can, and prepare for an economic slowdown

For some taxpayers, tax planning is almost impossible. Not only do the rules seem to change year to year but their income and tax situation also change year to year. However, for the vast majority of taxpayers, this is not the case and tax planning is pretty simple.

If your income and deductions are pretty stable year over year, simply pull up last year’s tax return and look at the amount of tax you paid (not your refund or balance due but the actual tax paid). Are you on track to pay that amount this year? If you are going to be short, you can increase your withholding amounts to help cover the shortfall prior to year end.

For parents, the biggest surprise at tax time may be when a child is no longer eligible for the child tax credit. In 2021 this credit became 3,600 for children under 6 and 3,000 for children under the age of 18. So a parent who received these credits in 2021 has to plan for the loss of the credit (or part of the credit) if their child no longer qualifies.

The other item that can trip up folks is the one time event they failed to tax plan for. So you finally hit the slot machine or lotto for a big payout, you sold a property, you got a big bonus, etc. These things are all great but can trip you up at tax time. That one time event may put you in a higher tax bracket and/or cause you to lose tax credits and deductions which can make the tax burden much higher than expected.

So if your income stream and family situation is pretty stable, tax planning can be fairly easy. However, be aware that any change in your income or family situation may involve actually crunching some numbers to avoid a big surprise come tax time.

While cancelling a credit card does not, in itself, have anything to do with your credit score, it can impact it in 3 ways which you should consider before doing so

The impact on your credit score (in order of importance):

1 – Credit utilization can be impacted.

Supposed you have total credit of 30,000 and have a credit balance of 3,000. That’s 10% utilization which is deemed good by most creditors. Now, if you have a 20,000 limit card that you cancel leaving you with 10,000 of credit, suddenly credit utilization jumps to 30% and that can have a significant impact on your credit score even though the amount of debt never changed. You always want to try to keep credit utilization on any card and in total under 10% to maximize your score.

2 – Length of credit can be impacted

Your credit score considers your length of credit. The longer the better. So if you have been carrying around that card you want to cancel for 20 years, cancelling it may significantly reduce your overall length of credit and impact your score. Thus, if you have an account that has been open a very long time, it is best to keep it open unless there is a good reason for closing it.

3 – Variety of credit can be impacted

Your credit score and lenders consider the types of credit you have and a variety is considered a good thing. So having that odd department store credit card that you applied for on a special promotion isn’t a bad thing and can help out your score. While you may never use the card anymore, you should think twice before cancelling if it adds to your overall credit mix.

Many people reach a point where they want to limit or consolidate their credit cards and there is nothing wrong with that. However, it is important to know the impact it may have on your credit score at least in the near term.

In my blog post “Sometimes… you should take the deal” I shared how the airline (American) offered us 60K miles to sign up for their credit card and that I was somewhat astounded that more people didn’t take advantage of the offer. In that blog I said it it were offered, I would do it again. Well…

I used those miles for 2 free round trip fares to Las Vegas and, during that flight, they offered the deal yet again and I had my wife sign up this time. Again this is a small hit to the credit report for a hard inquiry but that is rather trivial. She was instantly approved and awarded the miles (the card also means your checked bag is free and you receive priority boarding).

Using those miles, I just booked a free trip to New England with enough miles to spare for yet another free ticket in the future.

In times of inflation, when everything seems to be going up, taking advantage of these kinds of giveaways and perks is definitely worth doing.

People go to great lengths to protect their data from hackers, scams, viruses, etc. and they should, However in this article, I am going to talk about simply not losing your data.

It seems every year I get at least one call from someone who says “I had a computer problem and lost all my data”. There is no reason for this and I am going to talk about two simple things that can help prevent it

Backups:

In my office, I don’t just do backups but I do many redundant backups. Every night each drive is backed up. Then that same drive is “cloned” to another drive. Then all file data is copied to another office computer. Critical data is then backup up offsite.

There was a time when this type of redundancy would not have been possible but now storage space is cheap and readily available. There is simply no excuse for ever losing “all your data”. I once had a main drive failure toward the end of tax season and was back up and running (as if nothing had happened) the same day.

Surge Protectors:

Everyone uses surge protected power strips. I have many in my office. They are convenient and they last forever (or do they?).

What many people don’t realize is that while the power strip may work forever, the surge protection does not. It will fail over time. It is generally recommended that these be replaced every 2-3 years. Even more often if your area is subject to a lot of brown outs or spikes.

What many people also don’t realize is that you can overload a power strip by “daisy chaining” them together (plugging one strip into another). Some appliances (such as printers) put a heavy load on the strip by themselves and plugging more and more into it not only diminishes its effectiveness but creates a safety hazard. Modern surge protected power strips have many outlets, configurations, and protections to suit your needs. You should make certain they are doing the job as intended.

While protecting your data from outside invaders is, of course, very important. Making certain your data can’t simply “be lost” should be your first line of defense.

As noted in a previous blog, Windows 10 support will end in 2025 (the 10 year anniversary). Thus, everyone must be running Windows 11 by that date. This is a free Windows 10 upgrade. However, as previously pointed out, older hardware may not run Windows 11 forcing hardware updates prior to that time.

My office is one of those where none of the current hardware (which is running just fine) meets the Windows 11 requirements. Thus, I will begin to transition to new hardware over this 3 year time frame.

I don’t view this as a necessarily bad thing as it forces companies like mine to evaluate the current hardware and start to make some upgrade decisions (a lot has changed over the last 10 or so years).

The disappointment comes when you actually see Windows 11. The desktop has changed in that it tries to look more like a MacOs with everything moved to the center and referred to as apps instead of programs. However, everything under the hood is still basically Windows 10 with some Windows 7 still preserved (in fact you can change the appearance back to the original if you like). While Microsoft promises performance enhancements, is if clear that this is just a Windows 10 patch rather than a revamped new operating system.

There doesn’t appear to be any reason Microsoft could not have made this a free upgrade to Windows 10 for those with older hardware other than Microsoft deliberately wanted to try and boost sales.

While there is certainly nothing to rave about with Windows 11, the new hardware will almost certainly be a significant enhancement to my office. More on that later….

Out government has finally admitted that there is nothing transitory about inflation and is now moving to combat it. The only tool they can find in the tool box is to raise interest rates and the effects can now bee seen

Mortgage rates are now about 5% and climbing when they were at 2.5% just a few months ago. The stock market is entering bear market territory just as one would expect with rising rates. Following these events, you can expect consumer confidence to slip as the euphoria over cheap money and never ending stock and real estate increases quickly erodes.

I have said all along that the Fed is way behind and now they must act more aggressively than might have been necessary putting us right on the edge of that awful word: Recession

Our government over the past couple of years has done almost nothing correctly and hasn’t solved a single problem. From covid, shortages, supply chain issues, energy problems, etc. instead of tackling the problems head on they have simply thrown money at the wall hoping that would somehow magically solve the problems.

In our current free speech environment, it is somehow more important to punish someone for saying the wrong thing than it is to enable people to put food on the table or fill their gas tank.

There’s a saying about things needing to get worse before they get better. I believe worse is on the way.

Now time passes and you are wondering where your refund is and why it is taking so long.

Both the IRS and the state of Virginia have “where’s my refund” tools on their websites

The IRS is here

https://www.irs.gov/refunds

The Virginia is here

https://www.tax.virginia.gov/wheres-my-refund

These are the ONLY resources to find the status of your tax refund. Your tax preparer has no inside track and can’t get you any better status. Calling the IRS or the State will also not give you any better status and will only waste your time.

If there is a delay in issuing your refund (for whatever reason) you will simply have to be patient.

What your tax preparer CAN assist you with is any tax notices you may receive regarding your tax return. Often, it is the taxpayer’s failure to adequately respond to these notices, that significantly holds up the processing of the tax return.

People often complain that the wealthy get all the perks and yet won’t do the simple things that wealthy people do to stay wealthy.

Debit cards are the banks friend. They provide no miles, no rewards, no cash back, almost no protection, and payment comes out of your account immediately.

Now juxtapose this with a good credit card where you can get cash back on every purchase, shopping rewards, or miles. In other words, you can make money by spending on the exact same things you would purchase with your debit card. Not only that, you get purchase protection not typically provided by the debt card and you can get a grace period of up to 60 days before you have to transfer the money out of your account interest free. Imagine that, using the banks money to make yourself money.

Many people will balk at some of the best rewards cards out there because of the high interest rates. However, if you are paying off the card, what do you care what the interest rate is?

If you are a responsible individual who pays off their credit card each month, you should not even be carrying a debt card. Get a good cash back or rewards credit card and start getting some of your money back.