What Rising Rates Really Mean

Anyone who hasn’t been under a rock for the last year knows the price of nearly everything has gone up dramatically, and just about every pundit and politician has a scapegoat to blame. 

The downside is this:  who cares who to blame?  The problem is that regular folks are spending hundreds (or even thousands) of extra dollars they really don’t have just to make ends meet. 

Officially, inflation is – depending on when the figures you see were published – anywhere from 7-9% higher than last year, with one major “but…”

Gasoline is up over forty percent and groceries are up anywhere from 20-30%.

In other words, two of the largest categories for many Americans. 

Most of us have to drive and ALL of us have to eat. 

The “good” news in all this is the Fed is raising interest rates in dramatic (read that “historically”) fashion.  What does that really mean? 

The cost of money, literally, is rising. 

Traditionally, this tactic is used to slow down spending on larger items that would require loans – think cars, houses, and even business expansion – and this tends to lower inflation over time. 

What I hear a lot of clients asking is, “How quickly will it actually help me and my family?”

The bad news is that, frankly, you won’t see any real relief for some months.  Sure, gasoline prices have come down, but Diesel is still extremely high.  Grocery bills might continue to be scary for several months, and even then? 

Some prices – corn, beef, chicken, and so on – might stay high into next year’s growing seasons. 

Like it or not, the cost of living is up, and it’s going to be awhile before it comes down. 

So, what can you do? 

Well, unfortunately, there really isn’t too much.  I’ve never been a huge fan of rampant consumerism, and while you’ll likely see interest rates on some credit cards go up, right now, the economy is struggling.  The smartest things you can do are the same things I’ve said in these emails for years – spend your money wisely, don’t live beyond your means, and be realistic in your budgeting. 

…And yes, there are many unique ways you can generate new money or lower your annual taxes with some creativity.  Think about selling or donating older items that no longer serve you, set the thermostat a few degrees higher (or get a programable one to manage times when the house is empty), and think how you can use your own skills to make more money. 

Honestly, friends, we’re in a recession (whether the government chooses to refer to it as one or not), and that makes times tough. 

Those higher interest rates are also going to have an impact on the money you have saved – in some cases, it will help saver’s by generating more interest from the bank, while in others, it might technically reduce the value – and thus the equity – you have in a home.  

Now, that “lower” home value might allow you to argue with your local tax assessor’s office that the value they’ve placed on your home isn’t as high as it was, and that could generate some savings for you.  In one recent home sale, the buyer argued (and won) with the taxman and saved over $500 this year and next. 

As far as your take home pay, I’d suggest we look at your withholding to see if there might be some adjustments needed there, too. 

No matter what, these hard times are going to pass, but it’s not going to be fun for a few more months.  Let me know how my team and I can help!

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