Finance From A to Z: Week 2 (B)

Today’s edition of Finance from A to Z is about a few important B’s of Finance.

How important is budgeting for you all?

Do you know any tools or apps that help you save money efficiently?

Well, budgeting is a very broad topic and today, we are going to focus on the basics.

B is for Budgeting (101):

As we all know, the majority of North Americans live paycheck to paycheck. Let’s break this population into two categories: high-income and low-income households. During the pandemic, household savings grew in both categories, but the interesting part is how these households utilized their incomes. 

Statistics show that high-income households hold more than 30% of pandemic savings, compared to just 10% for low-income households.

Due to generally higher disposable incomes in low-income households, non-mortgage debt is being paid off, depleting savings, whereas high-income households continued to add to their stockpile. 

Budgeting hasn't changed much between the two income segments, except that the pandemic has allowed low-income households to carry small balances on credit cards and make payments on existing debt. For high-income groups, hospitality was their top pre-pandemic purchase category. 

What impact do budgeting behaviours have on external variables such as demand growth, inflation, and interest rate hikes? 

Inflation occurs when people have a lot of surplus cash and there is a rising demand for goods and services. With accumulated cash in hand by high-income people, the hospitality industry has witnessed a surge in demand, pushing prices of products to an all-time high. 

Additionally, a significant portion of their earnings is directed to investments in assets such as housing and the financial markets. 

How can you balance your income to be prepared for the future?

A great deal of caution is required to make a good fortune. Being prepared for unplanned events requires keeping an eye on one's personal finances. There are many budgeting apps that help set financial goals and provide a holistic view of your finances. 

To choose the right budgeting app for you, it is important to consider:

• Budget design feature
• Security
• Free version or low monthly fee
• Multiple account integration 

Some examples of popular budgeting apps are... Mint (for monitoring daily activity), Pocket Guard (to track spending), and YNAB or "You Need A Budget" (for achieving financial goals). 

Successful budgeting also correlates with the Stock Market!

How? It’s a long-term strategic decision that highlights the health of the economy. 

For instance, an increase in exemption limit for taxpayers. Taxpayers can benefit from a reduction in their tax burden and direct that money into an investment rather than paying taxes. This action will boost the stock market. 

Upward and downward trends in the stock market have specific terms, which we will explore in the following two B’s of finance. 

B is for Bear and Bull Markets:

In plain language, the presence of a bull market means that shares are rising while in a bear market, the shares are conversely declining. This has a lot to do with investor psychology as well.

The stock market performance either builds or shakes an investor’s confidence. 

The stock market and the overall economy are mutually dependent. An investor’s strategy is informed by and reliant on the market they want to focus on. 

A Bear market is linked with a weak economy. It is the name we give to the stock market during a decline of 20% or more. Investors in the bear market make sure to diversify their portfolios so as to deal with price fluctuations in the market and tamp down the volatility. 

Consequently, panic selling can often occur in bear markets and investors carry a lot of risk while trying to sustain themselves in these markets and prioritize their stocks. 

Now, on the other hand, we have a Bull market, which often builds confidence amongst investors. It’s a sign of a thriving economy and low employment. Investors are eager to buy or hold securities, which creates a buyer's market. Overall, one’s investment decisions are highly dependent on the nature of the market and their risk-taking capacity. 

When it comes to financial planning and budgeting, knowing how markets will behave and diversifying your portfolio are key takeaways.

Thank you, readers! 

Think there are other B's of finance that deserve more attention? Comment them below to share your ideas with the rest of our readers!

See you next Wednesday :)