Feeling Good About Personal Finances

Are you satisfied with your personal finances? If you said yes, you’re among millions of other Americans who are feeling good about their current money situation. The American Institute for Certified Public Accountants (AICPA) calculates the Personal Financial Satisfaction Index (PFSi) each quarter, an economic indicator that measures factors affecting the financial standing of typical Americans. At the end of the first quarter of 2019, the PFSi jumped to a record high of 36.1 out of an average value of 50.

This measurement is not only useful to see where you stand financially compared to the average, but also to see a different analysis of our current economic climate. Such information can help influence short- and long-term investment decisions.

What is the Personal Financial Satisfaction Index, Anyway?

The AICPA uses a partly proprietary method to calculate the PFSi each quarter. Basically though, they look at four areas of a Pleasure Index and a Pain Index, then determine the PFSi from the difference of the two indices.

The Pleasure Index represents areas where Americans are positive and optimistic and includes stock market performance, home equity per capita, job openings per capita, and input from CEOs and financial executives on their business, economic, and spending outlook for the next 12 months.

The Pain Index represents areas where Americans are feeling strained financially. It includes inflation, personal taxes, loan delinquencies, and underemployment.

Here’s how to boost your financial wellness this year.

Current Financial Outlook: Positive

There are a few reasons why the average American has a positive personal financial outlook.

Stock Market Rebound

Do you remember late last year, when the stock market sharply dropped? All sectors took a hit, especially Energy and Industrials. The government shut down for several weeks, then the Federal Reserve raised rates and the trade dispute with China eroded investors’ optimism. Fast forward to the end of the first quarter of 2019, and it’s like a completely different picture.

Markets rebounded, the government reopened, trade tensions de-escalated, and the Fed reduced planning interest rate increases. All this contributed to a sharp increase in the PFSi, to the tune of 11.3% over the previous quarter.

Lower Underemployment

According to this measurement, underemployment is down 12.9% from the previous year and 4.7% from the previous quarter. National unemployment rates fell and eight states set record lows for unemployment. Several sectors added jobs and 40 states grew nonfarm payrolls.

In addition, more Americans are paying their mortgages on time than in nearly 20 years, which means a lower loan delinquency rate.

Financial Guidance

How can you apply this information to your personal financial situation? For one, take note that volatility in the stock market doesn’t mean knee-jerk reactions to investments. Remain focused on long-term investment goals and periodic portfolio adjustments according to your plan, not the current performance of the stock market. No matter how many years out from retirement you are, choose a risk tolerance appropriate to your individual financial goals. Lean on the knowledge of financial advisors when you have questions or concerns.

Did you miss our post on Off-Season Tax and Investment Planning? Read it here!

Another takeaway is in tax planning. The PFSi looks at taxes as a pain point, and given the timing – the first full tax season with the Tax Cuts and Jobs Act implemented – it’s a good reminder to check your tax strategy. Millions of taxpayers should have gone back and adjusted their withholding after tax season this year. Also, if you received a large refund, consider if there are better ways to utilize that money besides a vacation, like retirement contributions, paying down high-interest debt, or an emergency fund.

But that’s only the beginning. Changes in estate and gift planning, deductions, and other tax provisions mean that a thorough review of your overall financial plan is probably needed. For questions on your personal or business financial planning or tax strategy, contact us here.