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Your Money: Affordability, inflation and your financial plan

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Your Money: Affordability, inflation and your financial plan
Bruce Helmer and Peg Webb

Inflation has been dominating the headlines. But what most people are actually feeling in their daily lives is something different: affordability pressure.

There’s an important distinction. Inflation measures the rate at which prices are rising. Affordability, on the other hand, reflects whether your income can keep up with the level of those prices. And even as inflation has cooled from its recent peaks, the reality is that many costs have reset higher and stayed there.

That’s why things may still feel tight. Over the past five years, consumer prices have risen more than 20%, according to the Bureau of Labor Statistics. Even in the past year, prices rose about 3.3%, while real wages increased just 0.2%. For many households, incomes are still playing catch-up.

This gap is where affordability pressure lives and it shows up in everyday life.

Affordability and your pocketbook

Housing is often the biggest factor. Roughly one-third of U.S. households are considered “cost-burdened,” meaning they spend more than 30% of their income on housing, according to the U.S. Department of Housing and Urban Development. Add in higher mortgage rates that have more than doubled since their pandemic lows, and the pressure becomes even more pronounced.

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It doesn’t stop there. Insurance premiums have climbed. Grocery bills remain elevated. Interest rates on credit cards and auto loans are significantly higher. And many people are still anchoring to what things used to cost, which makes today’s environment feel even more uncomfortable.

In short, affordability stress shows up in your monthly cash flow, not just on paper.

Inflation and your portfolio

Inflation doesn’t impact all investments equally. Cash, while stable in nominal terms, tends to lose purchasing power over time. Longer-term bonds can be sensitive to rising interest rates. Stocks, especially companies with pricing power, may be better positioned to adapt. Real assets like real estate or infrastructure can also provide a degree of inflation resilience.

The takeaway isn’t to overhaul your portfolio every time an economic indicator changes. It’s to build a resilient, all-weather strategy that potentially can outlast it. Maintaining appropriate equity exposure, diversifying across asset types, and managing interest rate sensitivity are all part of that process.

Planning considerations in the current environment

A strong financial plan anticipates how higher costs affect your life. That means shifting the focus from net worth to cash flow. Can your plan absorb higher recurring expenses? Do you have enough flexibility to adjust spending if needed? Are you managing taxes in a way that preserves after-tax income?

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Thinking about moving? Keep these realities in mind

For some households, the most powerful affordability lever is changing the cost structure entirely. That’s why many Americans are now considering moves from higher-cost to lower-cost states. Lower housing costs, reduced taxes, and a generally lower cost of living can improve cash flow and reduce the pressure on a financial plan, especially in retirement.

But a move isn’t a guaranteed win.

Transaction costs alone, related to selling a home, buying another and relocating, can take years to recover. Tax differences aren’t always straightforward; lower income taxes may be offset by higher property taxes or insurance costs. Healthcare access and quality vary by region. And lifestyle factors, like proximity to family or community ties, can be just as important as financial ones.

A move that may look good on paper still has to work in real life.

Practical steps you can take now

You don’t need to make dramatic changes to respond to this environment. But making thoughtful, small adjustments can make a difference.

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Consider locking in fixed costs where possible, especially when it comes to debt. Review variable expenses, including insurance and subscriptions. Maintain a healthy emergency reserve to absorb unexpected increases. And focus on after-tax income, not just what you earn on paper.

If your plan is solid, you shouldn’t need to overhaul it; you just need to make smart adjustments.

Inflation tells you what is happening in the economy. Affordability tells you what’s happening in your life. And while prices may not be rising as quickly as they were, they’re still higher than they used to be. A well-constructed financial plan accounts for that reality, builds in flexibility, and helps you stay ahead of your cost of living over time.

You may not be able to control inflation, but you can control how prepared your plan is for it.

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Advisory services offered through Wealth Enhancement Advisory Services LLC, a registered investment adviser and affiliate of Wealth Enhancement Group.

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Finance

Man who built Guernsey finance charity retires

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Man who built Guernsey finance charity retires

A charity has announced its new chair following the retirement of its founder.

Peter Neville worked for more than five years to set up Guernsey Community Savings, which first opened its doors in September 2020 to support people who were not able to access mainstream banking, staff said.

Former banker James Ellis is taking over the role. Neville said: “James brings exactly the right blend of financial services experience, charitable involvement and community understanding.”

The charity had helped about 200 people, who would otherwise have been excluded from the financial system access, to accounts and linked debit cards, and offered money‑management guidance to many more, staff said.

Neville said: “The initiatives now being discussed, together with the additional features offered by the new money‑transmission platform, reassure me that James’s vision aligns perfectly with the aims we set in those early days.

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“I wish the board and GCS staff every success as they take the charity forward.”

Ellis said: “‘The creation of Guernsey Community Savings in 2020 was only possible because of Peter’s unique set of qualities that enabled him to create a talented team and the structure to tackle the issues facing the financially excluded in our island.

“I was delighted when he asked me to continue with his work and further expand his vision, which I share, to provide help in the form of bank accounts, debit cards and financial education and to realise our ambition to provide grants and soft loans where needed.”

He added he was pleased Neville agreed to remain involved with the charity as life president.

Follow BBC Guernsey on X and Facebook and Instagram. Send your story ideas to channel.islands@bbc.co.uk.

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Hong Kong’s first 5-year plan to tackle economic gaps, boost jobs: Paul Chan

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Hong Kong’s first 5-year plan to tackle economic gaps, boost jobs: Paul Chan

Hong Kong’s first five-year plan will map out concrete paths to address the city’s shortcomings and magnify socio-economic benefits, including how artificial intelligence can create quality jobs, the financial chief has said a day ahead of the public consultation on the blueprint.

Financial Secretary Paul Chan Mo-po said on Sunday that the key task for the blueprint would be the upgrading and transformation of the city’s economy, vowing to press ahead with the Northern Metropolis megaproject and make it a “spatial carrier for deploying emerging and future industries”.

“Hong Kong’s five-year plan aims not only to provide greater momentum for economic development and better application of technology, but also to promote more inclusive and equitable development in society, provide residents with more quality employment opportunities, and create a better life,” he said in his weekly blog.

The efforts to formulate Hong Kong’s first five-year plan are led by Chief Executive John Lee Ka-chiu, and the blueprint is expected to be finalised by the end of 2026.

Lee said last week that the public consultation for the outline would begin on Monday, confirming an earlier South China Morning Post report.

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The public can submit views via dedicated websites during the two-month period, and the government would hold multiple sessions to gather input from various sectors, including lawmakers and industry representatives.

The blueprint aims at aligning Hong Kong’s development with China’s 15th five-year plan, which positions the city as an international hub for finance, shipping, trading, innovation and technology, offshore yuan and global talent.

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Finance

2 Awkward Talks to Have With Your Kids Before They’re 18 (Not ‘That’ One)

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2 Awkward Talks to Have With Your Kids Before They’re 18 (Not ‘That’ One)

As children reach adulthood, many parents assume they’ll still be able to step in when needed. In reality, that dynamic often changes quickly. Once a child turns 18, parents can lose both visibility and influence in ways they may not expect.

That’s why I suggest having two difficult conversations that can make a meaningful difference: The first helping your children build financial literacy, and the second ensuring you can support them effectively in a medical emergency.

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