If you have a balance on a credit card or an adjustable rate mortgage, you might be noticing changes in your payments. Higher interest rates are starting to ripple through the personal finance landscape, and it doesn’t look like that trend will change anytime soon. If we look at 30 year mortgage rates, they have almost doubled in the last 6 months.1 The Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage inflation, which is at its highest level in 40 years. As of today, Friday June 10th, inflation numbers from May 2022 are at 8.6%, which was higher than expected. At this point, we've all seen the impacts of inflation start to creep into our lives at some degree or another. Discretionary income is being used more and more to cover the necessities. The numbers that I noticed this week that were concerning to me are around consumer debt - housing, auto, and credit cards - being all at all time highs.2 The Federal Reserve’s job, among other things, is to control inflation (they're doing great! - just kidding). By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices. The hope is that they don't slow down the economy too much to cause a steep recession or depression. The reality is this is the time to really focus on savings, to button up your finances, make sure you have protection plans in place, to insulate yourself from the risks on the horizon. It's not a time to be fearful, however. There will be a lot of money to be made over the next few years, and if you're in the right position, you may just be the one making it. There are a number of strategies I am implementing right now with clients to help set them up on this path. As an example, you may want to look at I Bonds, which are issued by the U.S. government and earn a fixed interest rate plus a variable interest inflation rate that’s adjusted twice a year (November and May). I Bonds have certain purchase limits, restrictions, and tax treatments, so they generally play a limited role in your financial picture, however they can be a valuable tool to help your money keep up with rising costs. If you have any questions about inflation, interest rates, the economy, or just want to run a stress test of your current financial situation, please reach out. I'm always here to help put things into perspective and I'd love to bring some additional value to your life. 1 https://fred.stlouisfed.org/series/MORTGAGE30US 2 https://www.newyorkfed.org/microeconomics/hhdc |
Inflation Creeping into Personal Finances
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June 10, 2022