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How Rising Interest Rates Could Impact Your Finances in 2018

January 1, 2018 by SmartMoneySpending

How Rising Interest Rates Could Impact Your Finances in 2018

As expected, the Federal Reserve hiked the short-term interest rate by one quarter of point at its March 2017 meeting. It marked the second time the rate was increased since December 2015 and it was only the third increase in a decade. Because the economy appears to be picking up some steam, the Fed is anticipating at least two more rate increases in 2018.

Small incremental increases in the short-term rate don’t necessarily have a direct impact on consumers. However, long-term rates have also been increasing due to a stronger economy and the prospect of higher inflation. Those are the rates tied to mortgages, loans and savings accounts that do affect your pocketbook.

 

What’s Behind Rising Interest Rates?

Near the end of 2016, the economy finally exhibited some long-awaited signs of strength. Before the election, long-term bond yields began to rise for the first time in awhile. Because mortgage rates are directly linked to long-term bond rates, they also jumped. Since the election the stock market has soared to record highs, which has driven bond yields even higher. The stock and bond markets are reacting to the optimism for a growing economy and the prospect of higher inflation that tends to accompany it. If the current trend continues, consumers can expect higher interest rates to impact their personal finances in the coming years.

 

Mortgage Rates Going Higher

In late 2016, mortgage rates, which had been hovering near historic lows, saw their first significant increase in several years. The average 30-year rate jumped from 3.4% just before the November elections, to a tick above 4%. Mortgage rates are linked to the Treasury bond rate, which began to rise at the first signs of a strengthening economy. A better than expected jobs report for February 2017 pushed the long-term rate up higher.

Mortgage rate trends
Last 1 year

Morgage rate trends – last yearIf you already hold a fixed-rate mortgage, you won’t be affected by rising rates unless you have plans to refinance your loan. Now would be the time to refinance as there is no telling how much higher rates will increase. If you hold an adjustable-rate mortgage, you can expect your interest costs to increase, so now would be a good time to lock in a lower rate. For new homebuyers, mortgage rates are rising, but they are still attractive compared to a decade ago when they were near 7%.

 

Consumer Debt Will Be More Costly

If you hold any type of debt with a variable rate, you can expect your interest costs to creep up from now on. Most consumer loans with variable rates adjust once a year, while credit cards with variable APRs can adjust at any time.

Now would be the time to pay down your higher interest credit card debt or look for opportunities to transfer your balance to a 0% interest credit card for twelve months or longer and pay down the debt more quickly. Personal loans from a bank or credit union are typically issued with fixed rates for the term of the loan, so an increase in interest rates will not impact them. If you are uncertain how your consumer loan or credit card will be impacted by rising rates, you should contact your creditor to find out.

 

Savings Deposits Will Gain Traction

The good news is that savers will finally see an increase in their savings rate. The bad news is savings rates aren’t expected to rise very quickly or very far, at least for a while. Generally, rates on savings deposits tend to lag behind the increases on long-term rates.

Right now, banks are sitting on huge piles of cash, so they don’t feel the need to raise deposit rates to attract new money. The rates on money market accounts and CDs with longer maturities may rise a little faster than savings accounts.

 

Long-Term Investments Should Be Diversified

Rising interest rates have a direct impact on bonds. When the yields on bonds increase, their value decreases. However, bonds held to maturity are still redeemed for full value. If you plan on selling a bond in this environment, you are likely to receive less than its value today.

Long term finance decisions should be diversified

If you own a bond mutual fund, you are likely to see a decrease in share value, but, as the fund adds newer, higher yielding bonds, you should also see an increase in the fund’s yield. Risk adverse bond investors should consider rolling a portion of their portfolio into short-term bonds or short-term bond funds, which aren’t as sensitive to interest rate changes.

 

Equity investments, such as stocks, stock exchange-traded funds and stock mutual funds, can be a little trickier. Generally, higher interest rates and inflation can have an adverse effect on some stocks. Higher interest rates increase the cost of borrowing for companies which can limit their growth. Higher inflation can also increase costs for companies, which can eat into profits.

However, during a period of economic expansion, which is driven by higher corporate earnings, stocks should perform well. It is when the economy starts to overheat that higher interest rates and inflation can spike, causing stock prices to fall.

Regardless of the interest rate environment, the key to sound, long-term investing is to make sure your portfolio is well-diversified with a range of different assets. Stocks tend to perform well when bonds aren’t and vice versa, so it is recommended that your portfolio be balanced with a mix of both.

 

Time to Recalibrate Your Personal Finances

Increasing interest rates are a normal part of the economic cycle. Borrowers have benefited greatly, but people who rely upon yields for their savings or income have struggled. As it does with some regularity, the economic cycle is shifting to where it will begin to favor savers over borrowers. Although you are not likely to see the kind of spike in rates experienced in the 1970s and 1980s, it would be important for you to assess your current financial situation to determine how it will be affected by rising interest rates.

Read More:

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Filed Under: Finance, Investing, Money saving

The Sooner You Teach Kids About Personal Finance, The Better

May 13, 2017 by SmartMoneySpending

The Sooner you teach the kids personal finance the better

We parents know that teaching our kids about personal finance is something of real value for it will help them learn to manage their own finances successfully through their adult life. In fact, looking back when we were kids, don’t you wish we’ve been taught more about money? Well, now that you’ve learned more about managing your personal finances better, you’d want your children not to make the same mistakes you did, right?

After all, it’s not something kids learn and just pick up in school, and, until they get to be grown ups and discover for themselves firsthand what budgeting, saving and spending are all about, they’d be totally clueless as regards the challenges and benefits that come with managing money.

What makes us write about this topic is the ABNormal Return’s blog post about prioritizing your life. Kids should be our number one priority and their education especially their financial education should come second.

 

The Important Things You Should Teach Your Kids

The experts say that financial education should begin as early as possible in one’s life. So, if you happen to be a mom or dad with school age children, you can start teaching and helping them to build skills in soundly managing money. What follows are the three important aspects regarding money they need to know about:

1) The Values And Benefits Of Learning How To Save

The minute your kids learn how to count and get to be familiar with figures, you should go about teaching them the fundamentals of saving and the value of money. Encourage them to save coins in a clear crystal jar while making them understand how small amounts have a way of summing up to larger amounts … something they can set aside for a rainy day or for something that’s really important.

Those cute, nice and attractively colored piggy banks are a great idea, but kids don’t get to see how the money is piling up. A tall transparent jar should do the trick. Last week there were just several dimes and quarters, this week the pile is just a bit higher. Spend a little time talking to them about this and make a big deal out of it. It’s not going to hurt either to bring them along when making a deposit at the bank. It’ll reinforce their learnings about saving.

The money habits you are able to develop in your kids today will mold their financial future, that’s why it’s imperative that you put them on the right track early on.

For kids who are older, urge them to save part of their school allowance for something they may want to buy but can’t afford just yet, like maybe a new game toy or those NBA celebrity cards. It’ll be a good idea to put up a chart with a running tally on the fridge to sort of update them on how much more they’d need to save to get that item they want.

 

2) Spending Responsibly

Most of the kids may not have too big a problem saving, but spending responsibly might just be a struggle. Surely, you’re not unfamiliar with that typical scenario where your 6 year old boy makes a scene at the supermarket after telling him he can’t have the toy he has set his heart on. This is where and when it’s important for you to teach and make your children see and understand about wants and needs.

Help them to recognize that wants are oftentimes and most likely, unnecessary compared to needs. Make them see that as regards these things, it is important to prioritize.

For older kids, let them handle their own school allowance and learn to decide what part of it they’d want to spend on something that has caught their fancy. They’ve got to see and accept that if they spend all of it on one occasion or one item, they’re not going to get it back.

In other words make them see that if they buy this new video game, then they won’t have the money to get that beautiful pair of sneakers they’ve gone nuts over. They’ll learn fast and spend smarter the next time around.

 

3) Budgeting

Of course, with saving and spending, budgeting naturally comes.

The most basic principle – that of never spending more than what you earn (which in this case is the school allowance you give them) – should be taught to them and deeply embedded in their minds. Once they get this through their heads, it’ll force them to budget, so they’ll meet their saving and spending goals.

 

It’s always good to set an example. Those cute little eyes are watching. Out to dinner or the supermarket or, in just about any place where you’ll have to shell out money?  Create opportunities where you can demonstrate the benefits of budgeting. At the end of every month, when you and the better half are likely to be discussing obligations, payments and savings, get them into the picture. They’ll be much more likely to follow the healthy examples you show them when they’re all grown up.

 

How to shop cheapLooking For Great Values

The other thing that could do wonders for your kids as they grow older is for them to get into the habit of always looking for value. Before they run to the shopping mall to binge on the latest fads with their birthday money gifts, show them how much further those greenbacks can go if they’re just a little patient and wait for those items to go on sale.

The same thing goes for spending on name brand items.

All things being equal (quality, flavor, taste, etc.) there’s no reason to pay a premium for one label over another. Most consumer studies involving respondents, tasting blindly branded grocery items versus store brand or generics, have found that there wasn’t any discernible difference between them. And you save an estimated 25% going with the store labels.

 

Today’s Money Is Worth More Than Tomorrow’s Money

You’re smart enough to know that those dollars you’ve got in your bankbook today are worth more than the same amount you might get down the line, because of its potential for earning, not to mention inflation a couple of years from today. This is why your kids should learn early in life to put their money to work. And so, they should at the very least, stash and save in that crystal jar whatever cash they get on their birthdays and graduations. You can then, as they grow older get them a bank savings account, even if the money earns only a few dollars interest each year.

There is a research finding that parents today appear to be more preoccupied with teaching their children about sex more than about money. Don’t let go of the sex education, but impart the finance lessons to your children with keen interest. They’ll carry these through their lives and should make a great difference.

 

Sure, teaching them some of these principles about money will require you putting in some precious time and perhaps, on occasion may not even spell smooth sailing, but if you want your kids to understand how to manage their money well, when they’re out there chasing careers and already making their big bucks, going by these smart guidelines should be well worth it.

Filed Under: Finance, Investing, Money saving

21 Daily Tips of Saving Money

February 6, 2017 by SmartMoneySpending

Saving Money Daily -21 tipsEventually, it gets to the point in life where we get frustrated because we have no money. Normally, this actually comes from over-spending so we have compiled 21 fantastic tips to help you save each and every day.

 

1. Plan Meals

When we don’t plan our meals for the week, we are more likely to waste money on fast-food and takeaways. Once you sit down and write out a meal plan, you can cut down one of the most expensive outgoing payments.

2. Low-Cost Gifts

Finally, always look for low-cost or even homemade gifts for loved ones and friends for birthdays and Christmas. As well as showing that you have made a little more effort, homemade gifts can be much cheaper (and original!). In truth, the recipient is likely to appreciate the time you put into homemade gifts too because they can be personalized.

3. Cut the Coffee

Before you skip this entirely and move on to the next point, consider making your own coffee instead of buying from the store every morning. This way, you still get your kick each morning but you can save over $1,000 per year.

 

4. Set Specific Goals

Over a set period of time, you need to set yourself specific and achievable goals. When you say ‘I want a new car’, this is near enough pointless because you haven’t quantified your goal and you haven’t said how long it will take. If you really want a new car, how much will it cost, how long will it take, how much do you need to save each week to get there?

5. Quality, Not Quantity

When it comes to clothes and even food, you should adjust your mindset from quantity to quality. When you buy cheap, the product doesn’t last long or the food doesn’t keep you going. After spending that little bit more, you will save in the long run because items last longer and food will keep you going until the next meal.

 

6. You Aren’t Missing Out

Sadly, many people today have a fear of missing out which means that they spend too much, too often. We aren’t saying that you shouldn’t enjoy your life a little, but you need to hold back every now and then too if you’re really interested in saving money.

 

7. Be Yourself

Nowadays, we buy magazines and we spend half our life on gossip websites just to try and keep up with…well, the Kardashians. Remember, you have your own priorities and things that you value so you don’t need to spend unnecessarily on nonsense items. When you create a financial plan, ensure that it follows your vision and is a reflection on you.

 

8. Track ProgressHow to invest, calculated way

Of all the things we have here today, this is one of the most important because you need to see tangible results. Over time, keep a little notebook or even a note on your phone and keep tabs on how much money you’re saving. Not only will this show you how good you can be, it will keep you motivated and inspired to do more wherever possible.

 

9. Save Small Coins

When we were kids, we used to put small-value coins into a little jar and save it up – why did we ever grow out of this habit? Instead of spending it on coffee and other items that do not add anything to our lives, keep the coins and see how much you can save over the course of one year. If nothing else, you can enjoy a lighter wallet!

 

10. Have Money ‘Dates’

If you have dates with your friends and romantic interests, why not have one with your accounts, budget, and a calculator? Every week, you can asses your progress and re-align yourself to your goals.

 

11. Cut the Cable

Thanks to technology, there are more affordable ways to watch TV now so there is no need for cable. Instead, try Netflix, Hulu, and all the other platforms that are cheaper and can be more enjoyable.

 

12. Lodging Rental Sites

If you happen to be travelling, use lodging rental sites because this will allow you save money and it will also make the whole process more convenient. The most popular this kind of site is Airbrb

 

13. Work More

Although this sounds very simple and like something you might not want to do, it has a double-effect. As well as having more money to save, you will also have less time to spend; even if it is just one extra hour a day. A great way to make extra cash is Fiverr.

 

14. Outsource Tasks

Often, we think of money as a purely cash or credit type of thing but what about your time? When you waste time, you still waste money so see if you can outsource particular tasks to focus on the more important things in life. One great place for outsourcing is Upwork.

 

 

15. Avoid Emotions

Initially, this sounds extremely unhealthy but we just mean you have to learn to take emotions out of purchasing decisions. Whether you are lonely, sad, bored, or depressed, don’t turn to spending but instead employ the one week rule.

 

 

16. Finance Book

When you take the time to research and actually learn about finances, you will see the rewards. As soon as you know how to save money in theory, just as you are learning with this article here, you will be better placed to save money in practice.

 

 

17. One Week RuleRainy Day Fund

With the various apps and online stores these days, it is easy to keep spending money on pointless purchases. Therefore, we suggest waiting around one week on all purchasing decisions. If you still want or need it in a week, then you can be sure that the expense will be worthwhile.

 

18. Keep Goals in Mind

Furthermore, it isn’t just enough to write your goals once and then forget about them. If it is a long-term goal, you need to always keep it at the forefront of your mind. When you lose motivation or start to lack determination, re-read your goals and put them somewhere they will be visible every day. Quite literally, you need to ‘keep your eyes on the prize’.

 

 

19. Host a Potluck

If you have numerous friends, you might be surprised at how much you spend on lunches, birthday dinners and presents, etc. If you want to save your money, host a potluck evening where everybody brings their favorite dish. Your wallet will love you!

 

20. DIY Beauty

When you look online these days, you will find a number of resources showing you how to make your own beauty products and treatments. By doing this, you will save a huge chunk of money and it could actually be a lot healthier for your skin and body.

 

21. Exercise Pass Program

Of course, we all need to stay healthy so try out exercise pass programs. Normally, these will be much cheaper and you can get access to many fantastic locations rather than paying for them separately. Over time, you will get to enjoy/endure strength training, dance, fitness boot camp, and many more classes.

 

There we have it, 21 superb tips that will allow you to save money each day. On their own, they may not look like much but just think about the difference you can make if you start to combine them. Over the course of a year or several years, you will save thousands and maybe even tens of thousands of dollars!

Related:

  • How to invest $1,000
  • Where to invest (to save more money) – Betterment, Vanguard vs Wealthfront.
  • Money Saving, learn more.
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Filed Under: Money saving

About Author

Richard Mansour
My name is Richard. I figured out in my late 20s how money works and now I am an (angel) investor. If you want to get better on finance on the easy way, you are welcome to my blog. I am thankful and mow is my aim to help others reach my readers happiness.

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