The Federal Reserve has decided to raise the benchmark short-term interest rate today to a range of .25% to .50% from .00 % to .25%, and it will affect you. The immediate outcome from this decision will be slightly higher auto loan, credit card, and mortgage loan rates. However, the long-term impact, particularly for Millennials, could result in many American having to work well past the current social security eligibility age of sixty-five.
Today’s rate hike represents the end of this low rate era and the beginning of continual increases, and Millennials that fail to recognize this will suffer the most. Between ages twenty-one and thirty-six, the average adult will build more debt than any other fifteen year period of their lives. During this small window of time retirement age, household net-worth, and overall financial stability is determined, therefore it is important to limit interest exposure while these liabilities are increasing. Fortunately for most young adults, these increases will be gradual, which leaves the closing low interest rate door cracked open just enough to sneak in before it’s too late.
These increases also bring a bit of good news for those who save. Eventually certificate of deposit rates and other saving rates will also see an increase, and those with savings funds will earn a little more interest. This is especially good news for Baby-Boomers because they could experience a few last minute savings increases before retiring.
After the first quarter of 2016 another rate hike could be on the way, so if this one caught you by a surprise, don’t let it happen again. We are now in a period of financial flux and five to ten years from now those who didn’t pay attention will be left wondering how their debt increased so quickly. Remember, wages are not on the rise though the unemployment rate is dropping.
If you’re reading this and you are a Millennial or a younger member of Generation X, now is the time to position yourself to take advantage of these record low rates before they are a thing of the past. Do what you need to do now to fix your credit to take advantage of these fading low rates, because it will literally save you years of work and stress.
HOW DO YOU USE
You unexpectedly inherit $25,000.
You have a $225,000 mortgage.
You have a $18,000 auto loan.
You have $10,000 in credit card debt, all with a 12% APR.
You have $18,000 in student loan debt that can no longer be differed (5 percent rate).
All your bills are current.
All your other liabilities total less than $1,000.
You haven't taken a vacation in three years.
Your home and automobile are in good condition with no immediate upgrade needs.
You are employed.
Your net-worth can't be determined by another person because it will always come down to the numbers. While people will always try to estimate your financial status based on your material possessions or outward appearance, only the real numbers can reveal the whole truth. Know your numbers and ignore everything else.
Don't let your pride lead you to the poverty. Accept your financial mistakes, learn from them, and move forward. Being a good money manager doesn't mean not making mistakes, it has more to do with your actions after they occur.
D.E.B.T. Tip of the Day
If you want to reach financial freedom, chase your debts, not dollars. Remember, most of your current debts were based on income you've already earned, not earning potential. Therefore, unless you've experiencing an income reduction, the funds needed to pay down these debts are already scheduled to be deposited in your account. If this deposit isn't enough to cover your debts, maybe it's time to chase them down and get rid of them; even if that means going without some of the things you've grown to love.
"When income is stagnant and debts are growing, there is only one way to create stability, stop the growth."