So the Federal Reserve finally got off the fence and raised rates. About time! For clients we meet with regularly, you’ll finally stop hearing us say we’re making changes in your portfolio for “when the Fed raises rates.” I’ve been having the raising rates conversation on a regular basis for a solid three years now, so I’m actually pleased to be on this side of “lift off.”
Now that rates are finally moving north, a valid question to be asking is “How does this affect me, and what, if anything, should I be doing now?”
The truth is, this small 0.25% rate hike is more of a symbolic gesture than anything else. The Fed wants to show it has confidence in our economy, and this is a good first step. Sure, mortgage rates will start edging up. Credit card rates will move a little quicker. And hey, you might even see a little more return in your savings account (but not until the banks get comfortable with the increase and decide to pass the better rates on to you savers).
Everyone’s situation is different, but at a high level what advice should we heed? Simple: now that rates are increasing, you should do what you should be doing anyways; avoid the use of debt when possible, and aggressively pay down the debt you’ve already acquired. Sure, there are more factors at play and there certainly is a priority as to which debt you should payoff first, and we’re more than happy to discuss your unique situation if you’d find it useful. However, just because rates are moving up (finally!) doesn’t mean personal finance changes in any way, shape, or form. As I’ve said in the past (which I “borrowed” from much greater minds than my own), if you follow five principles in your financial journey you will live a very financially successful life:
- Spend less than you earn
- Avoid the use of debt
- Build liquidity
- Set long-term goals
- Be generous
So the Fed raised rates…what should we do now?!?! Easy – pay off debt (especially that with adjustable rates), and avoid taking on any more if possible! Oddly enough, this principle sounds eerily similar to one that made sense even before the rate hike was announced….
Dan Funderburk is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
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