This year’s presidential election wasn’t the first contentious campaign in American history, nor will it be the last.
For better or for worse, Donald Trump’s surprise presidential victory brings four years of uncertainty. No matter if you’re celebrating or protesting, in this post I’ll cover six key areas where the President-elect could change your personal finances and offer advice to manage your money no matter what’s around the corner.
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6 Ways a Trump Presidency Could Affect Your Personal Finances
Many say Trump has done a great job growing his personal wealth, but whether he can make the American economy more prosperous remains to be seen. From the promises made during the campaign and post-election, here are six ways his presidency could affect your finances:
1. Interest Rates
Before the election, there was speculation that the U.S. Federal Reserve would raise interest rates slightly because the economy is slowly getting stronger. But now the Fed’s not sure what Trump’s policies will be.
Economic uncertainty means that rates probably won’t budge in the short term or perhaps for the next year or two. That means the variable interest rates you’re paying on certain types of debt, like credit cards, lines of credit, and adjustable-rate mortgages won’t go up any time soon.
Trump tends to favor deregulation, which could allow consumers more access to credit. So, if you’re in the market to buy a home or to finance a business startup in the next few years, it could be easier. However, economists warn that less regulation could lead us back to those loose lending practices that blew up by 2008 and caused the last recession.
See also: 6 Ways to Pay Off Credit Card Debt
2. Healthcare
There’s no button that Trump or any lawmaker can push to instantly reverse Obamacare. Changing legislation as big and complicated as the ACA is a major undertaking that will take time.
Republicans have been trying to repeal the Affordable Care Act (ACA), known as Obamacare, since it became law in 2010. Now, they have a real chance because during the campaign, Trump vowed to ask Congress to repeal Obamacare on his first day in office.
Interestingly, a few days ago Trump said that he likes certain parts of Obamacare. These include key aspects of the law, such as the ban on denying coverage for pre-existing medical conditions, the ban on lifetime coverage caps, and allowing young people to stay on their parents’ health plans until age 26.
It’s important to understand that the ACA is a massive piece of legislation with more than 10,000 pages that contain more than 11 million words. Just for contrast, my book, Money Girl’s Smart Moves to Grow Rich, is about 250 pages and 60,000 words.
The law actually includes a total of 109 regulations, and some of them have nothing to do with healthcare or insurance. There’s no button that Trump or any lawmaker can push to instantly reverse Obamacare. Changing legislation as big and complicated as the ACA is a major undertaking that will take time.
Health insurance is already locked in for 2017 because insurers set prices and product offerings early each year for the following year. Disrupting consumer options for policies they’ve already purchased seems highly unlikely.
A sudden interruption of coverage would put the entire industry in a tailspin and cause serious backlash for Trump. The new administration and Congress won’t want tens of millions of uninsured and angry Americans causing an uproar.
Previous attempts to repeal Obamacare proposed a multi-year transition for certain aspects of the law. My take is that a Trump-approved phase out—including any changes to subsidies that have made premiums more affordable for millions of consumers—wouldn’t begin until 2018 at the earliest.
Open enrollment for 2017 health coverage began on November 1 and ends January 31, 2017. If you don’t have coverage, the Obamacare penalty will still be in effect until it's legally changed.
Protecting you and your family from huge, unexpected medical bills if you get into an accident or get sick has nothing to do with politics. Having health insurance is an essential part of managing financial risk and having peace of mind that you can handle any health crisis that you might face in the future.
So if you need coverage, shop health insurance plans carefully, use your insurance as you need it, and don’t worry about what may happen down the road.
3. Taxes
Taxes are an area that Trump will probably change the most for both individuals and businesses. I’ll just cover some of the likely highlights that would affect individual taxpayers here.
Trump wants to revise the personal income tax structure from the current seven rate brackets down to three: 12% on annual income up to $75,000, 25% for $75,000 to $225,000, and 33% on higher amounts.
Whether you’d end up paying more or less tax depends on your income. The wealthiest Americans would get the biggest tax cut because they’d go from the current top rate of 39.6% down to 33%.
Low income folks could see a tax hike, going from 10% up to 12%. However, Trump has also said that he wants to raise the standard deduction so individuals making less than $25,000 and joint filers making less than $50,000 per year would no longer pay income tax.
Trump seems in favor of repealing the estate tax, which benefits the wealthy, and keeping the mortgage interest deduction, which favors most homeowners who itemize tax deductions. He also wants to cap annual tax deductions at $100,000 for individuals and $200,000 for married people filing jointly.
According to the Tax Foundation, "the plan would cut taxes and lead to higher after-tax incomes for taxpayers at all levels of income." However, some analyts have said the net effect could mean that average working families with children and single parents would end up paying more tax and high-earners would pay less. We won't know until full details of Trump's tax reform is rolled out.
So my advice, as always, is to legally shelter as much of your money from taxes as possible. You do that by taking every available tax deduction and credit that the law allows. For starters, max out every tax-advantaged account that you can, such as an:
- IRA or Individual Retirement Arrangement
- workplace 401k, 403b, or 457 plan
- FSA or Flexible Spending Arrangement
- HSA or Health Saving Account
Contributions to these accounts reduce your taxable income, allow you to pay less tax, stretch your dollar further, and beef up your savings.
4. Retirement
Even if the financial markets are volatile due to uncertainty about Trump, it doesn’t matter in the short term. We’re going to see extreme swings as new policies are rolled out in the months and years ahead.
Trump hasn’t proposed any changes to Social Security retirement benefits. But experts believe the program isn’t sustainable without substantial changes such as a tax increase or increased retirement age, or both.
That means counting on the government to bail out your retirement is a bad idea. Creating your own financial security for the future has never been more important.
Contributing to the tax-advantaged accounts I previously mentioned, such as a 401k or IRA, has nothing to do with the election results. You control how much you put in, where it’s invested, and can take it with you if you change jobs or become unemployed.
Even if the financial markets are volatile due to uncertainty about Trump, it doesn’t matter in the short term. We’re going to see extreme swings as new policies are rolled out in the months and years ahead.
My advice? Get used to it, ignore the hype, and invest in diversified funds until it puts a squeeze on your budget that hurts. As long as American companies continue to do well, the stock market will increase over the long term and your investments will grow.
Historical stock market returns vary depending on the time period you look at. Since 1900, we’ve seen returns over 10% and since the 1990s over 18%.
That doesn’t mean you can count on double digit returns. But if you’re 25 years old and invest $500 per month at a 7% average return, you’ll have a million dollars before your 62nd birthday.
If you begin saving for retirement at age 35 and contribute $500 a month with an 8% average return, you’ll be a millionaire before age 70. Successful investing is more about the discipline to save money on a regular basis and patience to see it grow over the long term than it is about market timing or who’s in the White House.
One of the biggest expenses you’re likely to have in retirement is healthcare. So in addition to saving as much as possible month after month, stay healthy. Get plenty of exercise and make a commitment to upgrade the quality of your diet.
Feeling good and boosting your brain power will also help you live up to your full potential and earn as much as possible so you have plenty of discretionary money to save for a comfortable retirement.
See also: 10 IRA Facts Everyone Should Know
5. Jobs and consumer prices
A Trump presidency could bring more or less job security, depending on your industry. For instance, he’s promised lots of new infrastructure, like upgrades to airports and bridges. That sounds great if you’re in the construction industry.
But if Trump follows through on threats to deport millions of immigrants, businesses that depend on their skills would be left in a labor shortage. That could drastically reduce revenue and profit, leading to layoffs or a recession, in the worst-case scenario.
Trump has said over and over that he’ll renegotiate NAFTA, the North American Free Trade Agreement in order to end “bad deals.” Abandoning these agreements could entice manufacturers to come back to the U.S. with more jobs. The downside is that it could drive up prices considerably on many consumer goods.
The President-elect also wants to heavily tax imports and impose quotas on what we buy from foreign countries. Many believe this could start a trade war that would lead to job losses, particularly for low-skilled workers.
A trade war would increase the cost of imported goods or make items we take for granted completely unavailable. It could also ignite retaliation from other countries and make it more difficult for American companies to sell to foreign markets. Fewer sales to overseas markets could also lead to lower revenue, profit, and jobs here at home.
The best way to prepare for these potential economic changes is to make yourself as marketable as possible if you were to lose your job. Consider getting training that would expand your skill set or allow you to work in a completely new industry if yours goes down the drain.
The best way to prepare for these potential economic changes is to make yourself as marketable as possible if you were to lose your job. Consider getting training that would expand your skill set or allow you to work in a completely new industry if yours goes down the drain.
If we do see inflation in the future, you can create security by making sure you don’t overspend on a new home, vehicle, or credit cards. Keep your spending in check so you have plenty to save for the future and pay down your current debt at the same time.
6. Student Loans
Many Americans can’t enjoy the benefits of higher education because it’s so expensive, or they take on too much student loan debt that it becomes an oversized financial burden.
During the campaign, Trump criticized the rising cost of college. While he hasn’t offered ideas to bring down costs, he proposed capping student loan repayments at 12.5% of a borrower’s income and forgiving debt after 15 years of payments.
That seems generous, but the specifics on how to get at the root of college affordability still aren’t clear. It probably won’t be as much of a priority for Trump as it was for Clinton or Sanders, who made reforming access to education central to their campaigns. But at least the need to revamp the student loan system is an issue that both sides seem to agree on.
In the wake of the election, remember that who’s in control of our government is unrelated to how you spend and manage your money. The best financial move to make is to focus on what you can do to strengthen your financial future.
That means positioning yourself to earn more by getting a raise, promotion, or better paying job in a different industry. And being proactive to cut expenses where possible and avoid “lifestyle creep,” which is the tendency to spend more as soon as you make more.
Make a commitment to yourself and your family that you’ll accumulate a healthy emergency fund, consistently invest for retirement, and keep chipping away at your highest interest debts. These are the goals and outcomes that are solely within your control no matter how much or little money you have.
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Presidential Candidate Donald Trump on American Flag image courtesy of Shutterstock
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