If you are getting nervous about your money, inflation, and rising interest rates these days you are no different than most people. There has been so much discussion about all of it on the news and on the net that you’d have to be living in a cave or independently wealthy not to be nervous. So hearing and reading about all of it like I do every day is not helping me sleep at night…and I am not sure what will.
The numbers indicate right now that money is about to take a ride in the near term and this isn’t the kind of ride that will calm your nerves. With inflation peaking (maybe) and interest rates about to explode, what is one to do to feel good about the economic news?
What Condition Is Your Condition In?
As Kenny Rogers and the First Edition said over 50 years ago, you need to check your condition now to make sure you will be able to handle the near-term rocky road ahead for yourself. How do you do that?
Checking your readiness for any period of economic change hasn’t changed for 2022 or ever for that matter. When the Pilgrims were told that winter in New England would be rough times ahead, they prepared for it by stocking up on food and grains so they wouldn’t starve to death. Right now, as scary as it might sound, economic pressures are not going anywhere. So being prepared isn’t just a good idea, but more like a lifesaver just as the Pilgrims saw their scary winter ahead. You need to check your condition and get ready, too.
Here’s What You Should Be Doing
Last week, Fed Chair Jerome Powell said a double-size rate interest hike is “on the table” for May, making mortgages, car loans, and credit-card interest even more pricey than they already are.
That means you are most likely going to see your money shrink—unless you can find a way to avoid paying those higher rates on what you currently owe or might be planning on borrowing soon.
To put it simply, the vacation we have all been on with interest rates at all-time record lows in some areas is over. Those 2% 15-year and 3% 30-year mortgages are gone now. They literally disappeared over night!
So the number one checkpoint on your list is clear. Look at what you currently owe in debt and make a plan as to how you will begin to reduce and eliminate it without breaking “your” bank.
Americans Now Have Debt of $856 Billion
According to recent data from the Federal Reserve Bank of New York, Americans have $856 billion in credit card debt, an amount that has been rising steadily for many years. And according to Experian, the average American has 3 credit cards and credit card debt totaling $5,525.
If you are dependent on credit cards just to get by from month to month, and you’re racking up interest on those cards when you do, rising interest rates will make your life even more difficult. It’s great to have credit when you need to bridge a gap every once in a while to make a really needed purchase. But when you are endlessly accumulating debt at high interest, you are sinking in the quicksand.
I don’t have to explain to you how many bloggers have personally experienced incredible debt and written about how they overcame it. In many cases, doing that took years to accomplish. It’s a lot easier not to ever get into that spot, but the $856 billion indicates that it is here and dangerous. The time to get involved is now so that it doesn’t get worse.
Re-Examine Your Spending and What You Spend on When You Do
I swear to you that I look at my budget so many times a year that some would say I am obsessive about it. If I am, I am not admitting that there is something wrong with that. It only means that I am looking constantly at ways I can cut my expenses. Truthfully, there is still plenty of room in there to do it.
There is a fine line between what you need and what you want. You always want things and you should have many of those, but just not everything. Some kind of budget control must be in place or you can and will wind up in serious debt. The “danger Will Robinson” cry is just off in the distance with Fed Chair Powell’s mutterings last week and it is for real.
Why Raise Interest Rates Now When Everything Is Moving Towards Economic Recovery?
You’re working again hopefully and making more that you used to make according to all reports. But prices are rising even faster than you are earning and the fact that you want to resume normalcy in your life, the euphoria of getting back out there, may have you missing the underlying reason why interest rates are rising.
Federal Reserve Chair Jerome Powell said that the central bank will soon issue a double-size rate hike as it ramps up its fight to cool off inflation, record breaking inflation since back over 40 years ago. It signaled that that increase would most likely be 0.50%, a rate that will immediately drive up every cost of borrowing that you will ever consider. And that is just the beginning rate increase proposed.
The Fed’s benchmark interest rate is its top tool for steering the economy. After holding rates near zero through much of the pandemic, the central bank is reversing course. The Fed raised the rate from its record low by 0.25 percentage points in March in hopes of cooling the price surge. Yet with inflation trending at 41-year highs and Russia’s invasion of Ukraine driving prices sharply higher, calls for more aggressive action have intensified.
Are Mortgages Going Way Up?
The short answer is yes. Mortgages have already jumped at the mere mention of rate increases by almost double in most areas. Combining high rates with higher rents and a shortage of housing is a terrible mix for all of us.
If you were thinking of buying now, you may be in trouble. If you rent, prepare yourself for lease rate increases because your landlord probably has high interest mortgage payments for one and for two, they see this as a chance to cash in on something you really need and have no alternatives to avoid. That is called profiteering, but that is a post for future days.
Car Loans, Too?
Car loans and car prices are almost comical. I wrote about the Jeep Grand Wagoneer a few weeks ago, the car you can now lease for over $1,000 a month after your over $5,000 down payment? Is this the Twilight Zone?
It’s transportation, people! You’re not making a Mars exploration journey here that needs amazing technology and expense.
Let me leave you with this advice. It’s more important now than it was even just a year ago. Get a grip on your expenses and start saving money towards what really matters—your emergency fund, your retirement plan, and any college expenses you may need for you and your family.
Money is a tool towards a goal and not the goal itself, so accumulating it is good and wasting it is bad. With inflation and rising interest rates, you are getting the warning loud and clear. Take a good look at “what condition your condition is in!”
Are you in debt now? Do you have a plan as to how to get out of debt? Do you have a budget and have you examined it and then done it again to discover ways you can save? Is this the time for you to make your finances healthy again?
Image courtesy of QuoteInspector.com on flickr via CC BY-ND 2.0 with changes