You may think it’s over now. The recession seems to be grinding to a halt now. Consumers are now starting to rebuild their finances and are beginning to find new jobs. However, you must still continue to watch how you spend your money in the near future because as the economy starts its recovery, there are a few things that could add stress to your financial situation:
Increasing taxes. No one wants to even think about it but sooner or later most people in the middle class will end up paying more taxes. Most states are already beginning to collect more to keep state governments functioning. It is only a matter of time before the federal government gets to collecting more taxes as well. Government will need to control its debt and will have to make good on health care reform. As the economy recovers, government will also reduce tax exemption benefits like those given for mortgage interests, health expenses, and other privileges. When these begin to happen, you should ask your accountant or financial advisor about all the tax implications resulting from those big financial changes so you can plan accordingly.
Decreased government services. Both federal and state government will also look at reducing their expenses and this will mean reductions in many benefits we enjoy from them. Items that government usually spend big money on include education, Medicaid, public services like the police department, and so much more will definitely experience substantial cuts. Thirty-five percent of all federal spending comes in the form of Medicaid and Social Security benefits so these will also definitely be cut back substantially. If you are largely dependent on some kind of government benefit, you need to be making some kind of contingency plan so that you are ready when the cutbacks start to happen.
Increasing retirement age. Because Social Security needs to cut down on its spending, it is gradually pushing the retirement age up. By the year 2027, you will need to be about 67 years old before you can start collecting Social Security paychecks. This means you will have to work more years. Think about working part-time when you officially retire because your benefits may simply not be enough.
Slowly increasing incomes. Of course with all the reductions in benefits and exemptions from the government, as well as the increase in future taxes, that will mean a reduction in your monthly take-home paycheck. But the other factor here is that employers will also not be able to afford to pay higher wages. They will be looking for more skilled people who will not cost them higher salaries. People will need to keep getting more training and more education to prove themselves continuously valuable to their employers. In the meantime, be sure to live within your means. Pay any debt you have and if you do get a raise, think about saving that for a rainy day.
Everything will remain uncertain. Markets abroad are becoming tougher so there’s no real sign that the US economy will make really big improvements in the near future. The recession is over, but it’s not back to business as usual. Workers will have to be able to adapt to the constantly changing demands of employers or else, workers become obsolete easily. Try to find your weaknesses now and start addressing them now.
Only you can take care of yourself. You may get support from your company but that will never be the long-term kind of help you may need. Always try to keep yourself making some kind of income. Increase your income by arming yourself with more skills so you become more employable. Keep any extra money you have aside so there’s something to count on in the future. If you are enjoying some form of benefits right now, try to put away a significant fraction of that benefit for your future needs.