According to the Talking Heads of Financial Media, the central banks will continue to raise interest rates. This means that credit will continue to get more expensive. In other words, it’s going to cost you more if you need to borrow money for a house or if you have a line of credit. I’ve yet to see anyone talk about whether credit card interest rates will go up as a result of central banks’ increases. Let’s just say that I wouldn’t be surprised if credit card rates increased too.
So what are you going to do about it?
You do you. Take my words with a grain of salt. You know your numbers better than I do. Take what you need from this blog post and leave the rest. It won’t make any difference to me.
Invest
First, don’t stop investing. The stock market is down. In my opinion, which is both very inexpert and completely amateur, the stock market will continue to be extremely volatile for the next 12 months. This means that you should be buying and holding for the long-term. The stock market will recover, but absolutely no one knows when. Buying now means buying low. You want to buy low.
When you do buy, don’t sell. Stock markets are volatile right now. That means the value of your investment will go down on some days, then creep up a few days, then go down again. If you’re buying diversified exchange traded funds and mutual funds, you’re in it for the long haul. The price will gyrate, sometimes wildly. Do not check the price everyday. Invest regularly and believer that, over decades, the stock market’s trajectory is up. When you are investing for the long term, day-to-day price movements are inconsequential to your overall investing plan.
If you’re buying individual stocks, then you’d better know what you’re doing. I don’t invest in individual stocks because I don’t have sufficient knowledge to make wise choices.
No New Debt
Second, don’t borrow any money. This one might be tricky. Again, you know your situation better than I do so do with this suggestion what you want. Don’t borrow any money. If you’re bored with your vehicle and want another one, keep driving your vehicle. Being bored is way less expensive than paying 7.99% to a dealership. (Keep in mind that’s the rate they offer to people with good-to-great credit. I can only imagine the rates offered to those with less-than-stellar credit scores.) Do not finance another vehicle since interest rates on car loans are also increasing. If you simply must replace whatever you’re currently driving, then pay cash.
Maybe you’re ready for a vacation. Great! Pay cash. Perhaps a little self-care is in order? Do what you need to do. Pay cash. The new Bright-and-Shiny has finally been released and you’ve been waiting for it for a very long time. Fantastic and congratulations – go & get it! Pay cash.
It is not a good thing to go into debt when interest rates are going up. And they are going to keep going up for the next little while. Do yourself a favour and pay cash so that you don’t have to worry about them.
Eliminate Current Debt
Third, work on paying off any debt that you’re already carrying. I have no tips on how to change the past. If you’re in debt, then there are precious few ways to get out.
One method has two parts. First, don’t acquire more debt. In other words, start paying for things with cash or debit. Two, pay off the remaining balances on the debt you already have.
Have the money come out of your account as you pay for your purchases. Believe me when I say that you will naturally decrease the number of purchases you make. Fewer purchases results in having money available to make extra payments on your outstanding debt. Sending extra money to your outstanding debts results in those debts being paid off sooner rather than later. Once the debts are eliminated, creditors no longer have a claim on your money. This is a very good thing.
That’s it. That the 2-step method for getting out of debt. While this is a simple plan, it is not easy to implement. Never confuse simple with easy.
The other method to eliminate debt is bankruptcy. If you need to go that route, then talk to a bankruptcy trustee for expert advice. Bankruptcy trustees know the process and can offer you expert advice on how to deal with your situation.
Emergency Fund
Keep your emergency fund as full as possible. If you had to use it, then focus on replenishing it. Now is not the time to be on the high-wire without a safety net, financially-speaking. While you have a paycheque, ensure that a portion of it is diverted to your emergency fund until you have 9 months of expenses in there.
In my inexpert view, the recession is here although it might be nascent. People’s jobs aren’t as secure as they might like. When paycheques disappear, the emergency fund has to be there to take its place. (In an ideal world, everyone could live off the dividends and capital gains from their investments. We do not live in an ideal world.) If there’s a chance your job could disappear, then you need an emergency fund.
If you have an emergency fund, and you haven’t had to use it, then you’re in a great position! You should still consider padding it a little bit more though. Maybe adding another 10% to what you already have in there. No one has every complained about having too much money during an emergency.
Breathe
You’re doing your best. No one is perfect with money. Everyone’s situation is different, and you’re the only person who has to live with your financial decisions. Your money isn’t limitless and you’re making the best choices available to you with the funds you have. The fact that you’re even reading personal finance blogs is evidence that you care about making good choices with your money. You want to live your best life with the money you have.
Good on you! Take things one day at a time. Save-invest-learn-repeat. As you know better, you’ll do better. You can do this!