By Chris Taylor for the present
Sorry to be the bearer of bad news, but for every dollar you earn, there are a number of factors that make it go away.
There are taxes, for one, with April 15 not far off on the horizon. Then there is inflation: although it has moderated since the years of the COVID-19 pandemic, it is still eroding the value of our money at a rate of 3% per annum.
And now there’s a new concern: The U.S. dollar, which has fallen to multiyear lows against other currencies, About 10% down compared to the beginning of last year.
Put all these factors together, and your cash doesn’t pack a whole lot of punch when you go to the grocery store. Instead, it looks a bit weak and dazed, like a boxer at the end of a 12-round fight. In this article, the currentA consumer fintech banking platform, explains how a weak dollar affects everyday finances and what customers can do about it.
“This is reflected in imported goods and foreign travel, while subtly increasing the cost of goods and services and pushing asset prices higher away from general affordability,” said Mike Casey, a planner with AE Advisors in Alexandria, Virginia. “For the average consumer, imported essentials such as electronics, clothing and oil become more expensive.”
In other words, the purchasing power of that money in your wallet is under extreme pressure. Not exactly what we needed, in an era when affordability for families has become so challenging.
From one angle, there’s not much the average consumer can do about a weak dollar. Its strength is determined by factors beyond our control, such as interest rate levels set by the Federal Reserve.
But in other words, we can take targeted steps to maximize the value of our money. A few specific areas that a weak dollar should consider are:
travel abroad. On a daily basis, we may not realize how much the dollar has fallen. But when we go abroad, we must go.
“Personally, the multi-year declining dollar is affecting my travel budget,” says Theresa Publes, a planner at Equalis Financial in Los Angeles. “I’m planning a trip to Europe this fall, and I’ve intentionally padded my travel budget because I know the dollars won’t go as far on hotels, food, and activities as on previous trips. To make up the cost difference, I’m looking for other ways to save, like flying budget airlines and getting a new travel card with cash-back benefits.”
Practically speaking, this means that international travelers should be selective about their destination. It could also mean deliberately saving more before such a trip, as Publes did — or even delaying those big expenses altogether, until the exchange rate looks more attractive.
Imported goods. This sector is a double whammy for consumers: A weak dollar due to the current administration’s trade policies has not only pushed up the price of imports, but some have also been hit with tariffs.
One way around this is to be more intentional about buying American-made products when possible, as you’ll avoid exchange rates and tariffs that drive up some prices.
Cash holdings. Everyone knows that investing involves risk, but so does standing with your money. If your cash isn’t earning anything, inflation is rising, and the dollar is depreciating, you’re basically losing a little bit every day. This is also a long-term risk.
That’s why, at a minimum, you should make sure your cash is earning something significant. “For savings, move to high-yield accounts,” advises Casey
That way, you can bypass some of these larger macroeconomic issues dragging down the currency. This is easily done by checking your current rate and choosing accounts that generate higher interest.
card rewards. In an age when every penny counts, perhaps the simplest layup is to maximize the rewards programs attached to the cards you use every day. And yet, according to a Bankrate survey, about a A quarter of rewards card users Even last year no benefits were encashed. This is surprising, because it is basically leaving money on the table.
International investment. If you have a percentage of foreign stocks in your portfolio, congratulations: all else equal, the value of those holdings has likely increased, simply because of the appreciation in foreign currencies.
For those investors, a weaker dollar is actually a good thing. “We liked the weakness of the dollar,” said David Deming, a financial planner in Aurora, Ohio “This adds to our overweight in international funds, with emerging markets both the cheapest and best performers last year.”
If you don’t own many international stocks yet, this weak-dollar era brings with it the importance of diversifying your portfolio and having some global exposure. That way, you won’t have all your eggs in one basket.
This is the story is produced by the current and review and distribution Stacker.
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Previously published at hub.stackernewswire
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