Unexpected expenses tops the list of the average American’s money concerns as the New Year approaches, according to a new study, and financial advisors say their clients have reason to be worried.
“Trump ushered in a new game,” said Leon C. LaBrecque, a financial advisor in Troy, Mich. “We were playing checkers. Now, we’re playing chess.”
Fidelity Investments’ eighth annual New Year Financial Resolutions Study found that 65 percent of Americans fear unexpected expenses and nearly three-quarters of those whose new year’s resolutions fell short last year were derailed by unforeseen expenses.
“Unexpected expenses will still be a problem but political uncertainty is probably our newest and biggest fear,” LaBrecque said.
The good news is investors are paying attention to the writing on the wall. Among those who plan to focus on saving for the short-term in 2017, 72 percent want to put more money into an emergency fund compared to 60 percent in 2015 and 52 percent in 2014.
“This suggests people are focusing on the right things when it comes to saving,” said Ken Hevert, senior vice president of retirement with Fidelity. “Whether it’s a new roof for your home or a medical emergency, the unexpected can throw your finances for a loop.”
For those worried about the economy, 42 percent said they were most concerned about global or political instability, while 29 percent pointed to its overall strength.
Some 62 percent say the economy keeps them up at night.
“It’s all about preparing for the unknown,” said Melissa Sotudeh, a financial advisor in Rockville, Md. “You don’t want to get into a situation where you would go into debt due to unexpected expenses, especially because the Federal Reserve has just increased the federal funds rate.”
The trouble with increasing the federal funds rate is that it may signal a shift to a rising rate environment, which in turn could make consumer debt more expensive.
In light of possible greater inflation in 2017, LaBrecque is advising his clients to resolve to save more.
“The policies and ideas will flip about 180 degrees once Trump is inaugurated in January,” LaBrecque said. “America was globalizing, but Trump is leaning towards protectionism. Our leaders were regulating now we may be de-regulating.”
These looming new political realities have Justin Arnold’s planning clients thinking of their causes.
“The biggest financial resolution I've seen from clients after the Trump nomination is a renewed commitment to philanthropy,” said Arnold, a fee-only registered investment advisor in Denver.
“There is an emerging concern from some clients that civil liberties and the environment may be at risk and their renewed philanthropy reflects the desire to support and protect them both.”
The consensus among advisors is that establishing resolutions for the 2017 can create a feeling of confidence regardless of politics.
“People who make resolutions on money matters tend to feel better about the state of their finances and are generally in better financial shape than those who don’t,” Hevert said.
Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at [email protected]
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