How to position your personal finances amid rising interest rates, inflation

Ex-credit union CEO offers advice on weathering economic turbulence

Business Turning Point, Break Event Or Change Direction, Reverse Back, Interest Rate Or Financial Trend Change Concept, Frustrated Businessman Investor Looking At His Reverse Direction Pathway.

The Federal Reserve begins meeting today and will shortly announce what is widely expected to be another interest rate hike. Experts predict it will be one-half of one percent, which would bring the rates to basically 6 percent.

The meeting will be held in the wake of weeks of economic turbulence, including high inflation, strong jobs growth and a banking crisis. Experts expect that will result in another interest rate hike.

Fed Reserve Chair Jerome Powell recently offered a slightly ominous prediction that the hike might be even higher than most predictions, which certainly makes Wall Street nervous. And when Wall Street gets nervous, numbers tend to drop precipitously, which does damage to all of our investments and retirement accounts.

While this is all the delicate dance of fighting inflation by trying to slow the economy without crippling it into recession, any changes are felt all the way down the ladder into our bank accounts. The good news is the economy and the job market have shown remarkable resiliency during unpredictable times. The bad news is everything gets more expensive and loan rates keep going up making big purchases a LOT more expensive.

This is a process virtually all of America has to watch and cannot control. Actually, one can make an argument that even the people trying to control our economy don’t really have that much control over it, but that’s for political debate, not financial advice.

As former CEO of Service Credit Union, there’s not much I could or would say about the process around interest rates. However, there are a handful of tried and true things families and businesses can do to have some control over their finances and ultimately soften the blow of rising interest rates.

Here are a few things you can do and do now:

1. Don’t invest surplus funds for the long term. Rates that appear high today may be dwarfed by higher interest rates in the near future. Utilize certificate investment as opposed to the stock market, which can be a calmer and more predictable investment path. The stock market, especially nowadays, will undoubtedly take you on a rollercoaster ride of anxiety and potential loss of capital. Stop the ride and get off for a while.

2. Reduce debt per current repayment agreements as rates are rising. Current debt will be cheap money in the long run. This is an especially good idea for business owners who want a bit more flexibility in their costs and their revenue flow.

3. Do not delay purchases of goods and services, since their cost will only rise as interest rates rise and the future cost thereof will be higher. But spend wisely. And you can borrow at current, reasonable rates, which may well be lower today as compared to future interest rates. This is all about proper planning and recognizing what you must spend versus how you must spend it. This is another way of taking some of the sting out of rates rising and prices for everything rising with them.

4. Always have six months of savings that equals your monthly income to support your required living expenses and debt payments in the event of unemployment. This is really for individuals and families. This is not something that you can just do overnight, but if you implement this plan right away, then you can at least have some cushion if there’s an unforeseen change in your job status. Even two months of financial padding helps, but push it as close to six months as possible to give you maximum comfort. And don’t forget – the job market is still hot, so don’t panic.

5. Review/revise your budget cutting unnecessary or even frivolous expense. It’s common sense, but it’s also a measure of controlling your cash flow. Maybe that new fridge isn’t a need today. Perhaps you can get another 10,000 miles out of the family vehicle.

Not having control over finances can be frustrating and scary, but these steps can put you in a better position to handle the changing winds of the market and interest rates.

Gordon Simmons has over four decades of experience in the financial services industry and is the former CEO of Service Credit Union.

Categories: Banking and Finance, Business Advice, Finance