In January 2017, President-elect Donald Trump will assume his position in office as the 45th President of the United States. Whether this was the election outcome you expected or not, it shouldn’t interfere with your ability to achieve your financial goals. The best thing you can do is financially prepare yourself for the Trump presidency by informing yourself of his proposed policies and aligning your money (and your actions) with your future goals. Here are some ways to financially prepare for the Trump administration.
So What Should We Expect
Trump has proposed many policy changes. In fact, he even laid out a 100-day plan with ten specific legislative measures he plans to pass. Some of these proposals will have major financial implications if passed.
One major financial change to expect comes in Trump’s tax plan. He plans to reduce the income tax brackets from seven to three, while increasing the standard deduction. The proposed tax brackets would be as follows:
- 12% for single filers making up to $37,500 and married-joint filers making up to $75,000
- 25% for single filers making up to $112,500 and married-joint filers making up to $250,000
- 33% for single filers making more than $112,500 and married-joint filers making more than $250,000
Under the current tax law, the income tax brackets range from 10% to 39.6%. Since Trump’s proposal caps the income tax rate at 33%, those with the highest incomes will experience a reduction in income tax. Low-income earners will experience different results depending on their level of income. For example, those making less than $9,275 will be subject to a higher income tax rate – 12% instead of 10%. Conversely, the income tax rate will decrease for those making more than $9,275 but less than $37,650 – from 15% to 12%.
Also, the standard deduction would increase from $6,300 to $15,000 for single filers and twice that amount for married-joint filers.
Author, investor, and wealth coach Jarim Person-Lynn of Brass Knuckle Finance sees the standard deduction increase as beneficial. He says: “If (and that’s a big if) the Trump administration can make good on its promises, changing the standard deduction from $6,300 to $15,000, will be huge. Right now, one of the biggest reasons people tout taking out a mortgage is the tax deduction. Most mortgage tax deductions technically aren’t too effective for low-income earners in the first place as they force you to itemize and forgo the standard deduction of $6,300. When that standard deduction is raised to $15,000, there will generally be no one in their right mind buying a house ‘for the tax deduction.’”
Another positive is Trump’s plan to forgive student loans after 15 years of payments as opposed to the current provision, which requires 20-25 years of payments. In addition, Trump’s plan to repeal the Affordable Care Act would allow Americans to purchase health insurance across state lines in order to promote competition. Trump’s healthcare reform document describes his changes as promoting “free market principles.” Although it’s unclear if the reform will result in a smooth transition of insurance policies, Trump argues that repealing Obamacare will reduce health insurance premiums.
What You Should Do Moving Forward
With any new presidency comes some uncertainty. If you believe the Trump presidency won’t end well, it may be best to be a little conservative with your money until the market is less volatile. “If you want to be wealthy, [plan for a collapse]. It doesn’t matter how low the value of the dollar drops, cash, which provides immediate liquidity, will still be king over any other asset class in a collapse. You don’t have to invest in everything all the time. You can be patient,” says Jarim Person-Lynn.
You don’t have to cash out all your investments right now. Personal finance expert and success coach Jalesa Ann of My Money Mogul recommends being conscious and mindful with your money decisions. She says: “It is very important that people protect their assets, and think long-term when it comes to their finances. They should not let fear stop them from investing, financial planning, and taking full advantage of the tax advantages and opportunities available today.”
If you’re considering investing, real estate may be a good avenue to explore. Historically, more economic growth, including rising home prices, has occurred during Democratic presidencies. This means that:under Trump’s administration, we could see a reduction in home prices, making it a good time to… Click To Tweet
The key here is to protect the cash reserves you’ve built and be careful with your investments.
Your preparation for the Trump presidency will depend a lot on your personal circumstances and risk tolerance. Surprisingly, there was an uptick in stock prices immediately following Trump’s win. However, Jarim Person-Lynn doesn’t think it will last. He says: “there will be a short term boost in the economy that will come at the sacrifice of long-term gains.” That’s why it’s important to always have a long-term mindset when it comes to investing and your finances in general. Let it ride and be in it for the long haul.
The key takeaways here are:
- Pay attention to the preparation of your tax returns next year. You may want to forego itemizing your return in order to take advantage of the increased standard deduction.
- Save for medical expenses. The transition from Obamacare to Trump’s health care reform is ambiguous, so it’s best to have money set aside for health care costs in the event that there is a lapse between policies.
- Be conservative about your investments. Now is not the time to freely invest in stocks. Consider alternative investments that may benefit you as well, such as real estate if house prices drop.
Aliyyah Camp is a personal finance writer. She has a Bachelor’s Degree in Communication from the University of Pennsylvania. She blogs about ways to save money, make money, build credit, and invest on her website RichAndHappyBlog.com. When she’s not writing about personal finance, you can find her reading a good book or going for a run.