(Photo | Courtesy of OnPoint Community Credit Union)
After a period of record low-interest rates, the Federal Open Market Committee (FOMC), which is the monetary policymaking body of the Federal Reserve, announced a 0.25 percent increase in rates, the first quarter-point increase since 2018. The Federal Reserve’s increase comes as the country experiences the highest inflation in decades, with the Consumer Price Index (CPI) for all items increasing 7.9 percent in February 2022, the biggest gain since January 1982. To help individuals and families make sense of these economic changes and the impact on budgets, OnPoint Community Credit Union is providing educational resources and budgeting tools to the community.
“Even a fraction of a percentage point can significantly impact a person’s or family’s financial wellbeing, particularly as the cost of goods and services become increasingly expensive,” said Natalie Berning, financial advisor with OnPoint Investment Services & Raymond James. “In the short-term, higher interest rates make loans and mortgages more expensive. But it’s not all bad news. Higher interest rates will also increase the value of high-yield savings accounts, but those increases take longer to trickle down after a rate decision is made. People can prepare their finances today and make informed decisions by being aware of these shifts in the economy, getting proactive and making a plan to protect their budget.”
As the nation enters a new economic climate of increasing interest rates and inflation, OnPoint offers the following tips to help people in Oregon and Southwest Washington protect their financial wellness:
- Take a financial inventory. Now is an excellent time to develop a clear understanding of your financial health and make adjustments as necessary. Start by mapping out your household income, expenses, assets and debts. OnPoint’s budget calculator can help you break these numbers down. Inflation can complicate the budgeting process, but staying up to date on the latest shifts in consumer prices by following agencies like the Bureau of Labor Statistics (BLS) on Twitter will help inform your expense calculations to prevent surprises.
- Reassess spending habits. Identify areas where you can tighten your budget, like cutting back on leisure travel, delaying non-essential home projects, going out less, canceling subscriptions, and adjusting cable and cell phone plans. Reviewing your spending habits regularly and making adjustments when needed will help you live within your means through continued price and rate increases.
- Create an emergency fund. OnPoint recommends having at least three to six months of living expenses on hand for unforeseen emergency needs to avoid tapping investment accounts or using credit cards with high-interest rates. Reassessing your spending habits will allow you to uncover areas where you can save and put those dollars into your emergency fund. If you have already exhausted these methods, work with a financial institution on what options they have to support you through difficult times.
- Give every dollar a job. Identify where each dollar should go — whether it’s a retirement account, savings for short-term goals, paying bills or discretionary spending. This will help you understand where your money is going and ensure it is being maximized in this time of increasing costs.
- Savers should take a wait-and-see approach. For borrowers, people should act now to refinance debt because the Fed has signaled it will continue incremental rate increases over time. For savers, OnPoint recommends waiting to make any binding decisions on savings accounts since interest rates won’t go up right away but will pay off down the road.
- Take advantage of today’s interest rates. Even with the announced increase, interest rates remain near historic lows. You still have time to take advantage of current rates before they go up again. List out your debts and contact each creditor to proactively explore options to refinance loans at today’s rates, or transfer your balance to a lower-rate credit card and try to pay it off before the promotional rate expires. If you’re planning on making a large purchase, consider doing it now at the lowest possible fixed rate.
If you are a homeowner, your home value has likely increased in the last few years. If your budget needs more cushion, look into a fixed home equity line of credit (HELOC) as a more efficient way of paying off high-interest debt, or a cash-out refinance to lock in a low rate with a manageable monthly payment. - Review your retirement accounts. Revisiting your 401K and other retirement asset allocations annually will also enhance your fiscal fitness in the long term. Individual risk tolerance changes over time, so it’s important to do an annual financial check-up and reassess the plan. Make an appointment with a credentialed financial advisor today who can help ensure your assets are allocated to maximize the return on your investments.
“As we enter a new economic climate, the most important thing for people in our community to remember is that you are not alone,” continued Berning. “We encourage people in our community to visit one of our 55 local branches to discuss how shifts in the economy may impact their budget and create a road map that will protect their budgets and avoid detrimental surprises.”
From budgeting worksheets and home loan calculators to Enrich, a personalized and interactive financial education platform, OnPoint offers many tools and resources free of charge to help individuals achieve financial wellness amid uncertainty. Visit onpointcu.com/financial-education today to learn more about the complimentary tools and services OnPoint offers the community.
onpointcu.com • 503-228-7077 • 800-527-3932
