5 Ways a Good Economy is Costing You

Introduction

The United States is now in its 11th year of economic growth, making this the longest period of economic expansion in the country’s history. That sounds impressive, but is the boom actually having an effect on your wallet? It’s often easier to identify the effects of a recession, which include budget cuts, layoffs, and plummeting housing prices. But a good economy can have a noticeable (and positive) impact on your personal finances, provided you’re taking the right steps. Not feeling the effects of our current economic boom? Here are a few reasons why it might seem like you missed the party.

1. You Don’t Have Money Invested in the Stock Market

Since stock market performance tends to track the economy, the best way to cash in on an economic boom is to have money invested. That doesn’t have to mean buying or trading individual stocks; in fact, many financial advisers caution against doing that.

Consider Diversified Investments

Instead, consider investing in a mutual fund or exchange-traded fund, which are types of diversified accounts that are less vulnerable to risk but can still help you take advantage of a good economy. And if you aren’t already putting money into a retirement fund, it’s a good idea to open a 401(k) or a Roth individual retirement account so you can reap the benefits of long-term growth, particularly if your employer matches a certain percentage of contributions.

Image Description: Infographic showing the benefits of investing in the stock market during an economic boom.

2. You’re Not Taking Advantage of Low Interest Rates

This year alone, the Federal Reserve has lowered interest rates three times to stimulate the economy and prolong growth.

Refinancing Opportunities

If you’re a homeowner, low interest rates are a good opportunity to refinance your mortgage, says Kristin Pugh, a senior wealth advisor at TrueWealth in Atlanta. That includes not just replacing your existing mortgage with one that offers a lower rate but also shortening the term to pay it off more quickly. And while home prices might be on the higher side right now, people who are in the process of buying can still benefit from cheap financing.

“If you can lock in a low rate now that will last for the next 30 years, you have given yourself much flexibility in your financial planning for years to come,” says Pugh.

Image Description: Illustration showing how homeowners can benefit from refinancing during low interest rate periods.

3. You’re Relying Too Heavily on a High-Yield Savings Account

On the other hand, low interest rates won’t help you if you rely primarily on a high-yield savings account to grow your wealth. If you own a high-yield account, you’ve probably noticed that your interest rate has dropped. That’s because Fed interest cuts are designed to boost borrowing rather than saving.

Alternative Savings Options

So what should you do with the money instead? Some banks suggest certificates of deposit as an alternative. However, a better option might be a money market account, says Kristi Sullivan, a Denver-based certified financial planner.

“CDs aren’t yielding much more than money markets,” she says, “so no need to lock your money up if there isn’t a better interest rate to be earned.”

Image Description: Infographic comparing high-yield savings accounts, certificates of deposit, and money market accounts.

4. You’re Not Taking Advantage of Your Employer’s Increase in Matching Contributions

When profits increase during an economic boom, some companies turn a portion of that extra cash into bonuses, pay raises, or other benefits for employees. That can include increasing the percentage they match to employees’ 401(k) contributions.

“If employers are offering a higher match because the economy is booming, do what you can to at least contribute what they match,” says Pugh. Even if you won’t be retiring for several decades, an employer match is essentially free money.

Image Description: Illustration showing the benefits of employer matching contributions to retirement accounts.

5. You’re Not Boosting Compensation and Benefits for Your Employees

If you’re a business owner, CEO, or another decision-maker at a company that’s doing well, a good economy should be an opportunity to evaluate the compensation and benefits you offer. When unemployment is low and the labor market is tight, job seekers can be pickier about what they’ll settle for.

Competitive Compensation Packages

If your compensation package isn’t competitive or you’re not investing adequate resources into your workplace culture, you might find yourself struggling to fill open positions, losing top employees to competitors, or even being ghosted.

According to an estimate from the Center for American Progress, turning over one highly skilled employee can cost a company up to 213% of that person’s annual salary. In the long run, it costs more to lose good employees than to treat them well.

Image Description: Infographic showing the cost of employee turnover and the benefits of competitive compensation packages.