5 Things the Middle Class Shouldn’t Do With Their Money Early in Trump’s Second Term
Written by
Paige Cerulli
Edited by
Amber Barkley
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With President Donald Trump in office, there are lots of conversations circulating about tariffs, the stock market, unemployment and more. It’s natural to feel uncertain about what you should be doing with your money during this time, especially if you’re middle class and trying to maintain your financial stability.
Though you might be tempted to make some financial changes to try and protect your money, avoid these potentially costly mistakes.
Don’t Take a Short-Term Course to Investing
When news of Trump’s win spread, the stock market underwent significant fluctuations. Social media was flooded with posts from people considering pulling their money out of retirement to protect the funds against a volatile stock market, and the uncertainty hasn’t eased during Trump’s first days in office.
Such actions may be a mistake. Robert R. Johnson, Ph.D., CFA, CAIA, professor of finance at Heider College of Business, Creighton University, explained that it’s important not to change your investment focus in the short-term because of the presidency.
“The bottom line is that investors should not change course with the results of a major election,” he said.
Instead, Johnson encouraged investors to establish and follow an Investment Policy Statement, which is a written document that clearly outlines your return objectives and risk tolerance. The document also includes essential details, like liquidity needs and your tax circumstances, and it functions as a set of ground rules for your investment process.
“Investing without a plan is like driving without a roadmap or GPS,” Johnson explained. “Investors should take a long-term approach and stay the course.”
Danny Ray, CEO and founder at InsuranceForBurial.com, also recommended that middle-class families take a balanced approach to investment.
“While short-term investments might seem appealing in uncertain times, focusing on a diversified, long-term portfolio often provides more stability,” he explained. “The stock market tends to recover from temporary volatility, and panic selling can lock in losses unnecessarily.”
Don’t Forget To Balance Your Taxable Income
The Tax Cuts and Jobs Act of 2017 is set to expire after 2025, which could mean middle-class individuals would see higher taxes. The existing legislation includes lower tax brackets and a higher child tax credit, and if the Trump administration doesn’t extend the tax cuts, higher taxes could have a significant impact on taxpayers who are unprepared for the increase.
Ray encouraged families to prepare by exploring ways to lower their taxable income now.
“Contributing to pre-tax accounts, like 401(k) [plans] or HSAs, and taking advantage of tax deductions and credits can make a big difference,” he explained.
Don’t Back Off Your Loan Payments
Inflation can result in rising interest rates, and middle-class individuals with variable-rate loans could find themselves paying higher interest. Since variable-rate loans’ interest rates can change as market interest rates fluctuate, steep increases in market interest rates can mean that individuals with these loans might suddenly face significantly higher payments.
Ray encouraged individuals with variable-rate loans to prioritize paying them down while rates are still manageable.
“Refinancing into a fixed-rate loan could also protect against future hikes,” he added.
Don’t Overspend
Trump has vowed to implement 60% tariffs on China and 10% to 25% tariffs on Mexico and Canada. Such tariffs could increase the price of imported goods, meaning the cost of everything from cell phones to clothing could climb.
A report by the Geopolitical Intelligence Services explained that while U.S. producers of these goods could increase their prices without facing tariff costs, they could experience increased production and hire on more employees. But, the jobs created in one sector often mean that jobs in other sectors of the economy suffer.
In short, tariffs could lead to climbing prices and employment fluctuations. Ray recommended that the middle class avoid taking on unnecessary debt or making large purchases if their job security is uncertain.
“Budgeting becomes even more important during times of uncertainty,” he explained. “Creating a plan to save more and spend less can provide a cushion for price hikes on everyday goods.”
Don’t Make Financial Decisions Based on Fear or Speculation
There is a lot of uncertainty and anxiety surrounding Trump’s taking office, but Ray encouraged middle-class individuals to avoid making financial decisions based on fear or speculation.
“Focus on building emergency savings, reducing debt and making intentional spending choices,” he said. “These are the kinds of actions that build financial resilience, no matter what changes lie ahead.”
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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