How Do Rising Interest Rates Affect Me?
Before, I get into how this affects everyone, I need to give you a brief overview of how interest works. Basically, anytime someone borrows money from somewhere, there is a cost. That cost is interest. This cost is done as a percentage of your balance, typically expressed as a yearly rate. For example, if you borrowed $100 and had a 12% [annual] interest rate, you will be charged $12 each year or $1 each month.
One more thing you need to know is the significance of the Prime Rate. The prime rate is basically the interest rate that all loans are based on. Every bank sets their own prime rate, but it usually coincides with the Federal fund rate. So, by the Fed increasing the Federal Fund Rate (which is what is meant when people say interest rates rising) prime rates moving forward will change. In 2020, the Prime rate was at the lowest it’s been since 2008 at 3.25%. However starting this year, the Fed raised it to 3.75 and plans to continue raising it more next year and possibly the year-after.
The first way this affects us is loans and credit cards. Raising interest rates directly affects any future loans you take out as well as any current variable rate interest loans. This applies to personal loans, student loans, mortgages, HELOC’s, car loans, and any other loan you might receive. This is also true for Credit Cards, as they are based on the prime rate as well. Typically, you can expect to pay more as these rises, so this is a negative.
The second way this affects us is an increase in rates on declared rate products (CD’s, Bonds, etc…). You can expect an increase in earnings in these products. This is good news for people who use these products. This is also true for fixed products such as Life Insurance and annuities! More good news!
The bad news, as a result of people investing more in fixed products, people will invest less in the Stock Market, which leads to, at best slower growth than recent years, possibly a small decline, or at worst a severe market correction.
In summary, rising interest rates will affect most Americans in a variety of ways. If you are invested in fixed products or in the market itself or other variable products, I HIGHLY recommend revisiting with your advisor to make sure you are in the best position possible that aligns with your goals. Of course, if you don’t already have an advisor, or would like a second opinion, give my office a call and I will be happy to help you.
– Pigs can’t look up into the sky – it’s physically impossible.
– Your nose and ears continue growing for your entire life.
– Humans share 50% of their DNA with bananas.
– The tallest building in the world is the Burj Khalifa in Dubai, which is 828 meters tall with 163 floors.
-The opposite sides of the dice always add up to seven.
– Playing dance music (EDM) can help ward off mosquitoes.
– “Dreamt” is the only word in the English language that ends with “mt.”
-Pogonophobia is the fear of beards.
Dumb Money Mistake
When it comes to managing money, we all know what we should do and what we shouldn’t do! However sometimes we make mistakes, and sometimes those mistakes have a cost to them. Listed below are some common money mistakes that can cost you big!
Paying your bills late. A lot of people make the dumb mistake of paying a bill or bills late, not be because they don’t have the money, they just forget, time gets the better of them. This mistake can have steep costs, late fees, penalties, etc… The worst part is it is completely avoidable. The easy fix to this is set reminders on your computer, cell phone or on a calendar. Did you know that if you pay your credit card or other bills late consistently, they will raise your interest rates and then can raise any credit based service fees!
Bounce a check. Never write a check that will bounce or try to float a check! Never write a check for an amount of money that you know you don’t have in your bank account. This is common sense. This mistake can cost you big time. The average return check fees are $35.00 per transaction. So for example, you have a $100.00 in your account. You have 2 $25 debit transactions, and $100 check written. If that check hits first, your account now goes to 0 and when those debit transactions go through, you’re in the hole for around $120.00. Those 2 bounced transactions cost you $70.00. How to avoid this: 1. Don’t write checks for more than you have in your account. 2. Sign up for overdraft protection. If you do withdraw more money than you have in your account, the overdraft amount will be automatically added to your credit card or taken from your savings account.
Credit Card balances. This all-too-common mistake affects a majority of the population. Many people believe that carrying a balance on your credit card is good for your credit. The truth is, carrying a balance not only doesn’t improve your credit score, but in some cases, it could lower it. The best way to manage your credit cards is to pay off your balance in full each month, if you can. If you can’t, be sure to pay more than the minimum so that you’re not paying outrageous interest fees. How to avoid this… STOP USING CREDIT CARDS!
Not save. It’s extremely important to have an emergency fund ready to go when you need it. I’m not saying you should have thousands and thousands of dollars. Life happens and sometimes, saving that much just isn’t possible. But putting away just a small amount each month could add up to more than $1,000 over the course of the year. And in the event of an emergency, you’ll be happy you have it.
Do You Know June is…
National Safety Month!
Each week throughout National Safety Month in June is an opportunity to make a difference in your home, work, and community.
Identifying risks around the home or improving safety standards at home and in your community protects everyone. Whether we increase first aid and emergency awareness through drills or provide water safety tips for summer recreation, we’re taking steps to provide a safer neighborhood.
According to multiple surveys, many employees give themselves a 1% chance of becoming disabled for at least 3 months. The reality is that you have a 25% chance of that occurring.
The younger you are, the higher the chance that a three-month or longer disability will occur before age 65.
A 25-year-old has a 58% chance of becoming disabled for three months or more before age 65.
A 30-year-old has a 54% chance.
A 35-year-old has a 50% chance.
A 40-year-old has a 45%chance.
A 45-year-old has a 40% chance.
A 50-year-old has a 33% chance.
A 55-year-old has a 23% chance.
The average duration of a disability ranges from 2.1 years to 3.2 years, depending on age.
How would a disability event affect your family?