budgeting, finance, financial education

Rising Federal Reserve Rates and How It Affects Your Wallet

With soaring prices at the gas pump and grocery store, many Americans are concerned with how to alleviate the impact on their money.

Many Americans across the country have been very concerned with the rising rate of inflation since the pandemic started. Rising inflation causes a lot of things to happen, such as an increase in price in consumer goods like food and clothes. The current inflation rate as of June 2022 was reported to be 9.1%, according to TradingEconomics. While we are experiencing skyrocketing prices in many aspects of our lives, it is definitely understandable why tensions are rising when it comes to our wallets.

The Federal Reserve recently raised interest rates another 75 basis points after their July meeting last week. This actually comes after they raised rates back in June just a month ago. Although interest rates are rising, many economists like to explain it as a positive thing because it is a way to help combat inflation.

A question I am asked frequently is, how does the Federal Reserve rate affect my money? Quick answer is this: It indirectly affects our money by impacting the borrowing rates on credit products we use and the savings rates we have on our savings.

So let’s get to it, how does the Federal Reserve rate hike impact our money?

  • Mortgages- If you have a fixed-rate mortgage, which chances are you do, your payment won’t increase because a fixed-rate will not increase. If you do, however, have a variable rate mortgage or home equity, then you will want to check your statement or contact your lender. When rates go up, a variable rate loan will also increase.
  • Credit Cards- Credit cards have a variable rate, unless you are in a promotional period that offered a fixed rate for a certain time frame. Consider paying down your debt during a rate increase because it is a perfect opportunity to prevent spending more on interest.
  • Savings, CDs, and Money Markets- Luckily, savings rates tend to go up when the Federal Reserve increases its rate. This is a great time to rate shop for the best account that suits your financial needs.

Budgeting and Your Finances

Even though I tell my clients this often, it is crucial to get on a budget, especially during a time of economic ups and downs. Some people love using the old receipt method where you keep each receipt and use them to tally your spending each month. A great way to do that is by simply creating a one page spreadsheet and dividing your spending into a few main categories such as Food, Housing, Auto, etc.

If you rather create a budget with an app and let it do the work for you, the Every Dollar app and the Mint app are two great options to choose from that I have personally tried myself. These apps automatically pull your transactions in from your accounts and will allow you to see your spending habits each month. Budgeting may sound a bit tedious, but we tend to overspend when we don’t know where our money is going!

Happy Reading!

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