Navigating Your Finances in 2023
Like many things in a post-pandemic world, things look incredibly different than they looked even a little over a year ago, especially within the financial space. In 2021, I was able to refinance my home with an interest rate that I would be impressed with for an auto loan. Now, the landscape for buying a car or home looks completely different. We have all felt the pinch of higher prices for groceries, gas, etc. The cost of living has been a shock for low to middle-class families especially. The Federal Reserve sets interest rates based on the various factors impacting the economy. Then, financial institutions raise or lower interest rates with the standard the Federal Reserve sets. The goal right now is to make it more difficult for people to purchase high-cost items like a car or home.
Forbes describes this process well by stating: “When the Fed raises the federal funds’ target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments. Those who can’t or don’t want to afford the higher payments postpone projects that involve financing. It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity—a.k.a. cool off the economy.”
With that information, what is the average family with kids to do? Here are my suggestions:
- Thinking about a big purchase like a car or home? Consider holding off purchasing those items unless absolutely necessary. Payments will be significantly higher with the increased interest rates. If waiting is not an option, ask your lender about extending the term of the loan to make the payments more manageable.
- Evaluate your expenses: The new year is a great opportunity to evaluate what you are spending your money on. There are several free resources like mint.com that can help you to see where your money is going by category. From there, you can see where you can cut back.
- Pay yourself first! Make a goal to save a little bit each pay period. A savings account with $500 can go a long way to help pay for a flat tire or other unexpected expenses.
- Do you have a nice nest egg? The economic situation is great for you! Interest rates increase for both loans and savings options at the same time. Take advantage of low-risk investments or savings accounts with higher interest rates.
- Buy in bulk: Go stock up on items from the grocery stores in bulk! The larger quantities of items bought at a time decrease the cost. It’s a great time to utilize your Costco or Sam’s Club membership.
- Subscription inventory: There are so many subscriptions for television shows, music, and books. Evaluate what subscriptions you are actually using and which ones you could do without.
- Unsubscribe from store emails: Born to shop? Cut out the temptations for the latest sale from your favorite stores by unsubscribing from their email list.
- Fallen on hard times? Communicate this to your financial institution before your finances get out of control! Many banks and credit unions can either give you an extension for a few months or find other creative payment solutions. The key is to communicate if you have fallen on financial hard times.