Happy New Year to everyone reading this article. Each new year brings with it a little baggage from the year before, but also the hope for better days ahead. This year brings with it some economic baggage from 2022, in the form of high inflation and rising interest rates. These two factors have put a squeeze on everyone’s finances. A dollar doesn’t go as far as it did a year ago and if you borrow a dollar, it’s going to cost you more in interest than it has in over a decade. The U.S. inflation rate is 7.1%, as of November, which is way too high. This percentage has come down from its high of 9.1% last May but is still more than triple the 2% target rate of inflation. The prime interest rate, which is the underlying index for most credit cards, home equity, auto, and personal loans, is currently 7.5%...the highest it’s been since October 2007. This prime interest rate was at or below 5.5% for over fourteen years from 2008 to 2022.
Due to the fact that we’ve had an extended period of low inflation and low interest rates, many
Americans have little experience saving, spending, budgeting, and investing in the current economic climate. Here are a few ways experts recommend prioritizing your finances in 2023.
• Make a budget. Having a budget is always a good idea, and never more so than when inflation is reducing the value of each of your dollars. According to a survey by debt.com, 80% of Americans budgeted their expenses in 2021, compared with only 68% in 2019. Just keeping track of your expenses can be eye-opening, especially since there’s been significant price increases in goods and services the past few years.
• Pay off variable rate debt. Variable rate loans, like credit cards and home equity loans, have had very attractive interest rates for a very long time. These loans are typically tied to the prime interest rate and therefore have increased significantly over the past six months. Because of these increasing rates, experts say paying down debt – especially variable debt – should now come second to living expenses, and well ahead of investing.
• Maintain a rainy-day fund. As prices soar, it can be tempting to seek out investments that will keep pace with inflation. Before you consider where to invest, however, the experts recommend setting aside enough cash to overcome any immediate financial challenges. As simple as that may sound, less than half of Americans have enough in savings to cover a $1,000 emergency expense.
These are just a few ideas for getting through this time of rising prices and rates. Here at Wasatch Peaks, we are offering much higher rates on our insured savings products than we did a year ago. We also do offer variable-rate loan products like credit cards and home equity loans, and although these rates are increasing, they are still well below other rates in the marketplace. Please let us know how we can help you, your family, or your business survive and thrive in 2023…remember, we are all in this together.