May 2021 NewsletterSubmitted by Dorval & Chorne on May 1st, 2021
Keagan Kinsella | May 1, 2021
Happy May! The sun is shining, the flowers are blooming, and it’s time for another newsletter! This month we’re going to be talking about:
- Are you a point hoarder? From credit cards to Caribou—the psychology behind loyalty programs
- Are you making this common investing mistake in your Roth IRA? You may not even know it!
- Question of the month: What’s the deal with student loan cancellation? Should I keep paying, or hold off?
Using “Points”…what’s the point?
Whether it’s Starbucks, Sephora, or SkyMiles… these days more and more companies are offering some sort of loyalty reward program. Perk programs that give you points from every purchase seems pretty neat, almost like you are getting a little more bang for your buck! It was fascinating to learn that Bankrate did a survey and found that 31 percent of credit card holders in the US have never redeemed their credit card rewards! Why is that?
I was recently watching a YouTube video where the person was showing off that they have stockpiled over 30,000 points on their Chick-fil-A customer rewards app. If you’re unfamiliar with Chick-fil-A points… that’s a lot. He said he probably has enough to redeem free sandwiches for an entire year, but he can’t fathom parting with his points! He also showed viewers that he has over 460,000 miles on United Airlines (…yeah, that’s like 30-40 flights worth!).
While this may be an extreme example, I think a lot of people can relate to the feeling of stockpiling, and not wanting to go backwards. The marketing analysts creating these rewards programs know that our brains love to see numbers go up…it feels like we are making progress! It makes you want to go back again and again.
But in the Chick-fil-A example I gave, it poses the question… When will he ever start to use his points? Is there ever going to be the best time?
I know people who do this with airline miles, and also credit card rewards. For me personally, it’s pretty satisfying to see my Visa “Cash back” balance accumulate as the months go on. (For the record, while a lot of financial gurus stick their nose up to the idea of using a credit card—it can be a beneficial tool if you use it correctly! Getting in the habit of paying off your balance every month will get you the best of both worlds… you get your points and aren’t charged any interest!)
Do you feel like this with your savings account? For many savers, they are so used to the comfort in seeing their bank balances get bigger and bigger, it becomes difficult for them to spend it—even if it is something important to them!
We talk about this quite a bit, but one of the most helpful decision-making thoughts is to put everything in the context of “Quality of Life.” Will having 60,000 Chick-fil-A points truly make me happier? What does having double the account in my savings mean for me? Maybe I would get more quality of life from using it to take a trip, treating my family, or paying off debt! So cash out those points, and cash in on quality of life!
A Timely Tax Season TikTok
Last month I talked about how tax season was upon us, and would you look at that—it’s still upon us! May 17th is the new tax filing deadline, which means procrastinators are celebrating everywhere! Not only are taxes due by then, but it also is the deadline for making any IRA, Roth IRA and HSA contributions for the prior year.
The other day, I came across this video, and I thought it was a timely reminder of something we see quite often, in especially Roth IRAs.
People will go through all the work of setting up the account, picking the investments, linking their checking account, funding the Roth…and then they miss the last step. We have even seen them save diligently year after year, contributing to their account…only for us to look at their statement and see their balance is sitting all in cash.
The important takeaway from this is that a Roth IRA is just a type of an account, it is not a specific investment. Therefore, when you put money into the account, your work is not done! It is a two-step process. The next step requires you to take that cash and direct it into the actual investment itself—whether it be a mutual fund, stock, or ETF!
So this is your reminder, go look at your accounts and make sure you’re invested how you thought you were invested!
Question of the Month: Student loan forgiveness. What’s the status?
If you are one of the 44.7 million American’s who have student loan debt, you might find that you’re in a bit of an unusual situation right now. Whether you agree with the idea of student loan cancellation or not, it has been something on the mind of borrowers who are trying to plan for their financial future!
The question of this month is something we’ve been hearing week after week. “What should I be doing with my student loans? Will they actually be forgiven?”
While we don’t have a crystal ball and are not able to answer the second part of the question—we do have some things for you to think about when you consider about the idea of potential loan forgiveness affecting you in the future.
Here are 5 key things to know:
- On April 28th, 2021, Biden introduced the American Families Plan, but this focused more on lessening the amount of student debt taken on by future students. He is proposing to make two years of community college free, and also increased federal Pell Grant funding. Nothing was clarified about federal loan forgiveness.
- The federal student loan interest-free payment pause you are probably familiar with will now extend through September 2021.
- If there is any loan forgiveness, we think it will most likely be in the $10,000 range, not the $50,000 that was originally proposed by Biden in his campaign.
- To be eligible, there is a good chance there may be income restrictions in place. It has been proposed to phase out if your household income is greater than $125,000 per year.
- The proposed forgiveness plan would affect undergrad, federal student loans. If you have private, or graduate student loans, you might be out of luck from the forgiveness end, but can look into refinancing to a better interest rate.
Overall, there are a lot of things to consider. Although we love the goal of paying off debt as quickly as possible—since interest is currently 0% on federal student loans, it might make sense to take a step back, pause, and see what plays out with the possibility of loan forgiveness in the coming months. Make a plan, and budget for how you will repay your loans if they are not forgiven! When it comes down to it, you don’t want to worry about what the government may or may not do… If you want to, you can always take advantage of the interest deferral, keep paying your loans off, and make as much progress as you can!
All right, that’s it for this month. Stay tuned for my next newsletter where I will continue to share and inform in new and creative ways. If you want to sign up for the newsletter email, click here (and let others know they can sign up.) Last but not least, let’s connect on LinkedIn!
Advisory services provided through AdvisorNet Wealth Management (AWM). Dorval & Chorne Financial Advisors and AWM are not affiliated.