Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
Inflation is ballooning to its highest rate in 40 years. You’re likely feeling the effects when buying gas or groceries, and you’ll almost certainly have noticed it if you’re in the market for a new car or home.
As a result, the Federal Reserve has indicated it plans to keep raising short-term interest rates to help manage that inflation. (On June 15, the Federal Reserve raised the benchmark interest rate by 0.75 percent, the largest increase in almost 30 years.) By raising interest rates, the Fed hopes to slow spending, bringing down consumer prices.
Historically, that’s been effective in bringing down inflation and normalizing the economy over the long-term. But in the short-term we’re all feeling the pinch, perhaps most of all millennials and even older Gen-Zers.
Their buying power is being hit with a double-whammy at a time in life that’s typically full of big purchases and major life events. As a result, many in their 20’s and 30’s are having to delay major purchases like a car or first home, as well as milestone life events like getting married or having a child.
If you’re in that situation yourself, here are some tips and insights to help you tame your stress, regain control of your finances, and get a plan in place that will set you on the path to attaining those big purchases and plans that are central to your vision for living well in the future.
First, manage the short-term financial crisis.
Adjust Your Budget for the Higher Cost of Living
The first plan of attack should be to revisit your budget and see where you can cut costs. Non-essentials like dining out, vacations and other types of discretionary spending should be the first to go. After that, see how you might be able to trim your costs of living. Can you trim your weekly grocery bill, do without cable, or work from home to save on gas costs, for example? If your situation is more dire, consider even moving in with family or downsizing to save on rent or mortgage costs.
Consider Ways to Increase Your Income
Instead of or in addition to cutting costs, another option is to try and increase your income to make up the shortfall. Consider asking for a raise at work, looking for a higher-paying opportunity, or taking on a second job.
Re-allocate Funds Earmarked for Savings Only As A Last Resort
If your budget still doesn’t cover your necessary costs, only then should you consider temporarily cutting back on the amount of your earnings allocated to your savings account and retirement fund. But don’t ever dip into your emergency savings to cover everyday costs – it’s even more important to have on-hand when the markets, economy and your personal finances are volatile.
Pay down high-interest debt (and avoid racking up more).
If you have a balance on a credit card or an adjustable rate mortgage, you might be noticing changes in your payments. That’s because higher interest rates mean that debt is now more expensive to have as well. So if you have high variable interest rate debt, it may make sense to temporarily divert some of the funds you’d normally allocate to savings or retirement to paying down that debt.
Then, get back on track with (or build) your long-term financial plan.
Manage Your Stress
Weiss, Hale & Zahansky Strategic Wealth Advisors Principal/Managing Partner Laurence Hale has written previously about ways to manage investment and financial stress during market volatility (you can read it on our blog at whzwealth.com/advisor-blog).
Much of the stress relieving strategy relies on taking a pause to reduce your panic, assessing your situation, and making strategic adjustments to your financial plan to keep your budget and goals on track (thereby putting your mind at ease).
That’s why having a financial plan in place, and a financial advisor to guide you through volatile times, is crucial to not only your finances but to easing your anxiety during times of financial stress. If you don’t have a financial plan yet, work with a trusted financial advisor to build one.
Manage Your Portfolio and Financial Plan to Manage Your Future
Although inflation and higher interest rates are already affecting your budget and possibly your financial and life decisions in the present, only time will tell if they’ll prompt changes to your investment portfolio going forward. Remember, your overall strategy should already take into account that there will be transition periods in the economy and markets.
In the meantime, check in on your portfolio frequently and work with your financial advisor to adjust your overall plan to one that can keep you on solid ground now while still paving the way toward the big goals you have for the future, whether it’s a new car, your first home, your dream business venture, or adding a new member to your family.
If you have any questions about inflation or interest rates and how they’re affecting your progress toward reaching your financial goals, please get in touch. We’re always here to help put things into perspective, and our Plan Well, Invest Well, Live Well™ strategic process can help put you on the path to where you want to be.
Authored by Senior Vice President, Financial Advisor Leisl L.Cording, CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.
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