S4-7: Federal Deficits, International Aid & HSAs

At the request of Family Finance Mom followers, I am now posting LIVE Q&A replays as podcast episodes! To submit your question, be sure to follow me ⁠⁠@FamilyFinanceMom on Instagram⁠⁠. Look for the question box in my stories ahead of LIVE Q&A every Wednesday at 9AM ET. On today's episode, we talked about the likelihood of a Q4 stock market rally, the $1.7 trillion federal deficit for 2023, the benefits of using HSAs, next month's Fed interest rate decision, WARN notices, and how consumer sentiment around international aid is being impacted by the federal deficit. See full show notes below and listen to the episode in its entirety here:

Market Downturn Concerns Addressed

Meghan expressed her concerns about the market, citing various factors such as rising interest rates, geopolitical conflicts, and negative real-time data that, in her opinion, point to a higher likelihood of a market downturn. Meghan also emphasized her preference for taking a long-term view of the market over a short-term one due to the unpredictability and risk involved.

Fiscal Year 2023 Federal Deficit Discussed

Meghan discussed the significant deficit reported by the Treasury Department for the fiscal year 2023, which was three times more than what was predicted in 2019. She explained that the major factors contributing to this drastic increase were the stimulus spending during the pandemic, inflation leading to higher interest rates, and inflation-linked payments by the Federal Government. Meghan emphasized the need for a more accurate forecasting of government spending and the potential impact of the vicious cycle of growing deficits and national debt.

Related Post: Why the National Debt Matters

Benefits of Health Savings Accounts for Early Retirement

Meghan discussed the benefits of contributing to a Health Savings Account (HSA) for those with high-deductible health plans. She explained that HSA contributions are made pre-tax and can be used to cover qualifying medical expenses, making them an attractive option for those planning to retire early. Meghan highlighted that HSAs provide a tax-advantaged way to save money for future medical expenses, which can be significant as one ages. However, she also emphasized the importance of considering personal financial goals and priorities before making such decisions. Meghan also pointed out that funds in an HSA can only be used for qualified medical expenses.

Financial Implications of Paying Off Mortgage vs. Investing

Meghan discussed the financial implications of paying off a starter home with a 3.13% mortgage versus investing in stocks for a down payment on a new house. Meghan advised against paying off the mortgage early, as the current mortgage rate is significantly lower than current market rates for new mortgages. Meghan suggested that the opportunity cost of having the cash tied up in the mortgage is less than the potential return from investing it in stocks. However, she emphasized that this decision should also consider the individual's risk tolerance and comfort level.

Fed's Interest Rate Decisions Amid Tight Labor Market

Meghan discussed the upcoming Federal Open Market Committee meeting and the possible decisions the Fed might make regarding interest rates. She explained that the Fed's mission is to maintain full employment and stable prices, but currently, the unemployment rate is below the Fed's target of 4%, indicating a relatively tight labor market, and inflation is running above the 2% target. Given these conditions, Meghan believes that the Fed might continue to raise interest rates, though she acknowledged the potential impact of unforeseen events and the ongoing Middle East conflict.

WARN Notices and Labor Market Indicators

Meghan discussed the concept of 'WARN Notices' required to be issued by employers by the Department of Labor when planning a certain number of layoffs. She explained that these notices are mandatory when a company has a certain threshold of employees and plans to lay off a specific number. Meghan also noted that an increase in WARN Notices indicates potential upcoming layoffs and a possible softening in the labor market.

Related Post: What's Up With the Labor Market?

US International Aid: What Would it Take to Pull Back?

Meghan admitted her lack of expertise in this area but noted the significance of public opinion on Congressional spending decisions. Meghan also highlighted the importance of fiscal responsibility, given ballooning federal deficits, national debt and rising interest rates, and the need for a clear explanation from political representatives on why it is necessary to spend on foreign aid.

The session ended with Meghan promising to share upcoming housing data and insights on the Federal deficit.

To catch all episodes of Finance Explained, be sure to visit the Finance Explained podcast home page and subscribe wherever you get your podcasts to never miss an episode. Have a question you'd like Meghan to answer on Finance Explained? Look for the question box in her Instagram stories every Tuesday, or you can also now record a question for her to answer on the podcast. Keep your questions coming - they help all Family Finance Moms continue to build their financial literacy and make us all financially smarter!

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