We’re heading into a new year, and that means many of us are thinking about our finances and wondering how to shore them up.
While there’s no way to tell for sure what will happen, it’s a good idea to be on the watch for potential personal finance trends in the coming year. If you’re wondering what might be next, here are three things to keep an eye on in 2018:
1. Taxes
With the tax bill just passed, it’s no wonder people are trying to figure out how they will be impacted. First of all, realize that for a majority of Americans, the tax benefits will be relatively small — especially when spread out over a year’s worth in your paycheck.
Sure, the “average” tax break for families is supposed to be right around $2,000. But when you divide that up per month, that comes to $166.67. Hardly life-changing money in your paycheck. Plus, that tax break depends on your individual situation. Different analyses indicate that many families will probably break even.
The idea of doubling the standard deduction seems great until you realize that your personal exemptions are gone. A bigger standard deduction and a bigger child tax credit might not erase the value of the $4,000 per-person exemption you will no longer receive for you, your spouse, and your children. The bigger the family, the bigger the impact.
On top of that, right now the tax breaks for individuals are set to expire in 2025. So, before you get excited about an extra $2,000, realize that the practical impact might not be that big — and your actual benefit depends on your situation.
Rather than planning around a hoped-for tax windfall, instead plan for your current financial situation. Make sure you aren’t under-withholding from your taxes due to a W-4 based on your personal exemptions (which no longer exist), and keep your budget steady. If you do end up with a tax break (something that won’t be manifest until spring 2019 when you file 2018 taxes), figure out what to do with the money then.
For now, stick to certainties and stay the course.
2. Housing Market
Look for slightly higher mortgage rates as interest rates continue to head higher. Even with that expectation, though, home prices are likely to moderate. They’ve been moving higher, due to tighter inventory and higher demand as millennials get ready to buy.
However, with home builders picking up the pace a bit, inventory should grow and that should ease some of the pain. Additionally, as more people start dipping a toe in home buying, rent prices should slow their increases as well.
It’s important to pay attention to regional trends, though. It might be harder to find homes in certain areas, and there are markets that always see higher prices than others. If you are looking to buy, look for low-cost areas, like suburbs in the midwest and south. You might also be able to find a few good deals when you look for short sales and foreclosures. A few of those are still working their way through the housing market.
As long as you are ready to go, this might be a good chance to snag a good deal during a year that might be a “sweet spot” for the real estate market.
3. Stock Market
Many people are interested in investing, thanks to the length of the current bull market. Plus, other investments, like Bitcoin, are getting a lot of attention.
However, it’s important to be careful. While investing can be a good way to build wealth for the future, realize that there are risks. Right now, the stock market is doing well, sitting at historic highs. It’s been some time, though, since there was a real correction to the stock market. As a result, we can expect a big drop.
It might not actually happen in 2018, but it’s a good idea to be prepared. Continue using dollar cost averaging to build your portfolio, but steel yourself for a market event. If it comes, don’t panic and sell off your positions. That will only lock in your losses.
Instead, pay attention to your portfolio and make sure you are properly diversified. Also, make sure you understand which assets you need immediate access to. It’s also not a bad idea to consider keeping money aside to invest in the event a stock market drop provides you with the chance to go bargain hunting.
Bottom Line
There’s no way of know exactly which personal finance trends we’ll see. However, you can prepare for any situation by paying down high-interest debt, living within your means, and making prudent investments.