Rising Interest Rates: What Can You Expect?

The Federal Reserve recently announced their plans to raise interest rates in the United States. This comes as no surprise to many considering they raised them an astounding seven times in the last year. According to the official Federal Reserve website they stated that, “The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on reserve balances to 4.4 percent.” This decision acts as a method to try and control the sporadic amount of inflation that is happening and bring it down to a balanced medium for sustainable economic levels. Considering the recent pandemic, and the war on Ukraine, it has been a central issue within the Biden Administration. The US has spent trillions of dollars, most of which has sparked controversy given the geopolitical factors taking place at home and abroad. In retrospect, rising interest rates will have a significant impact among everyday Americans. 

The home market may also be impacted by rising interes
t rates. Mortgage rates climb along with interest rates, making it more expensive for prospective homeowners to buy a property. According to Investopedia, “when the economy is strong, interest rates tend to rise along with growth. Higher interest rates, however, translate into higher mortgage loan costs.” As a result, there may be less demand for homes, which might slow down the housing market and possibly result in a drop in home values. This may have an impact on homeowners' wealth and financial security and make it more difficult for first-time purchasers to enter the market.

Consequently, rising interest rates can reduce consumer spending and company profitability, and may also have an impact on the stock market. Consumer spending is likely to drop and economic growth may lag when interest rates rise because people will decide to preserve their money rather than spend it. Investopedia also points out that, “Higher interest rates tend to negatively affect earnings and stock prices.” This can therefore have an effect on the stock market, resulting in a drop in stock prices. Americans who have stock investments may see a large reduction in the value of their holdings as a result of this.

Likewise, the job market may be disrupted by an increase in interest rates. Interest rates rise because borrowing money becomes more expensive for businesses, which lowers corporate investment and might push businesses to make fewer hiring decisions. Investopedia also indicates that, “by raising the bar for investment, higher interest rates may discourage the hiring associated with business expansion.” This may result in fewer job openings and maybe greater unemployment rates. Americans may be significantly impacted by this, particularly those who are seeking employment opportunities.

These rising interest rates will negatively impact a consumer’s borrowing and spending money in a variety of sectors. Whether it is mortgages, consumer spending and low employment participation, they are all influenced to some degree by the changes in the interest rate. To put this in a much broader perspective, according to an article published by Bankrate, “About 25 million Americans have at least one personal loan.” Deciphering this statistic demonstrates the large-scale popularity for borrowing money at a time when inflation is scaling above its previous ceiling. As a result, personal loans are popular because their interest rates are lower than the national percentage. 

To understand more about loans and how you can protect yourself during a time of rising interest rates, You can read our previous blog about how you can stay ahead of the terms and conditions you might be faced with when signing to borrow more money. 

Here to help,

Financially Fit Employees

 

Why the Term "Sale" is Manipulative

The term "sale", in reference to the language used by businesses when they sell goods at reduced prices, is often used in marketing and advertising to manipulate consumer behavior and drive sales. This tactic is known as "sales psychology" and is based on the idea that people are more likely to make a purchase when they believe they are getting a good deal or a discounted price. Max Freedman, who is a contributing writer for Business.com, offered an
alternate view towards why people buy. “There are different ways that individuals buy products. Some customers buy impulsively and rationalize the purchase later. In other cases, the person uses logic and reason over emotion when purchasing new products.” This census provides advertisers the rationale to use sales psychology tactics to coerce consumers into making stimulated purchases repeated over the course of many payment interaction systems. Today, we will be going over many tactics deployed from sales psychology that, as a consumer, you can become aware of and make yourself less susceptible to falling into one of these traps set by advertisers and other businesses.

Tactic One:

One common tactic used in sales psychology is the use of limited time offers, such as "flash sales'' or "doorbuster deals." These types of promotions create a sense of urgency and scarcity, which can make consumers feel like they need to make a purchase quickly before they miss out on the deal. How often does your own news feed project major promotional headlines full of “last minute” or “extended” specials. Your email inbox is probably full of them. Are these sales and specials really designed to help you? No, ‘Sales’ are loaded words, psychological tools to convince you, the consumer, to part with your hard-earned money. According to Priceintelligently.com, “The idea behind psychological pricing is that customers will read the slightly lowered price and treat it lower than the price actually is.” Retailers, and often their marketing departments, will use all different kinds of sales sizzle language to tie your emotions or intelligence to their offers (“I’m being smart buying at this price”, “they’re practically giving it away”). Trained, well-paid psychologists and advertising experts armed with data points have manipulated the media to convince you to give them your money by using certain language like “limited time offer” or “while supplies last” to create the illusion of “get it before it’s gone”.

Tactic Two:

The second tactic used in sales psychology is the use of "anchoring," which is the practice of setting a high price for a product and then offering a discounted price to make the sale appear more appealing. This can make the consumer feel like they are getting a great deal, even if the discounted price is still higher than the normal market price for the product. Businesses also use price comparisons to make consumers feel like they are getting a good deal. For example, a retailer might advertise a product as being "50% off" when compared to a higher "original" price, even though the "original" price was never actually charged for the product. Remember that generally a real sale is designed to reduce prices to offload excess (otherwise called UNWANTED) goods. The morality here is having the discipline to not buy items like unwanted goods that you do not have the money for.

These are just a few examples of how the term "sale" can be used to manipulate consumer behavior. Sales psychology is a powerful tool that retailers use to drive sales and increase profits, but it can also be misleading and manipulative. It is important for consumers to be aware of these tactics and to approach sales with a critical eye, to ensure they are getting a fair deal and not being taken advantage of. This approach also ties into BNPL systems that coerce consumers into paying for things under financing conditions that aren’t always

P.S. Here are some questions to ask before engaging with a retail sale:

 “Am I buying this just because it is on sale?"

Cross reference your prices, ask “Could I find this item for a better price somewhere else? How much does it cost to manufacture?"

Here to help,

The Financially Fit Coaches Team

Situational Awareness With Checking Accounts

Effective management of your personal finances is essential for achieving your financial goals and avoiding financial stress. One important aspect of personal finance management is knowing how much to keep in your checking account and where to store excess funds.

It is important to keep enough money in your checking account to cover your expenses and avoid overdraft fees. According to Consumer Finance overdraft fees “occur when you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.” They can also be costly and add up quickly. According to experts, it is recommended to keep a balance in your checking account that is enough to cover two months worth of expenses plus a 30% buffer. Again, this follows the 50/30/20 rule of principle when dividing money in the correct locations. This will give you a cushion in case of unexpected expenses and help you avoid overdraft fees, which on average are $33.58, according to Bankrate. 

But what about excess funds in your checking account? Checking accounts do not typically offer any interest, so it is not ideal to keep large amounts of money in a checking account long-term. Instead, it is recommended to store excess funds in a high-interest savings account. By placing your excess funds in a high-interest savings account, you can earn additional money on your balance through interest. It is a good idea to compare the annual percentage yield of your savings account to other banks' offers, as they can vary widely.

Personal finance management involves more than just knowing how much to keep in your checking and savings accounts. It is also important to create a budget, set financial goals, and find ways to save and invest your money. A budget can help you track your expenses and ensure that you are not overspending. Setting financial goals can give you something to work towards and provide motivation to make smart financial decisions. And finding ways to save and invest your money can help you grow your wealth over time. Keep in mind, checking accounts in these situations are a catalyst to help manage what is coming in and going out. It's a reference point of how much money is available to you on demand. 

Managing your personal finances effectively requires discipline and planning, but it can also lead to greater financial security and freedom in the long run. By following the guidelines outlined above and finding the approaches that work best for you, you can work towards achieving your financial goals and enjoy the peace of mind that comes with being in control of your finances, especially when it comes to maneuvering checking accounts. 

Here to Help, 

Your Financially Fit team

The Envelope System

The envelope system is a budgeting method that involves allocating a set amount of cash to specific spending categories and physically placing the cash in labeled envelopes. This method can be a helpful tool for those who want to take control of their finances and avoid overspending. There are several positive outcomes to using the envelope system with cash, rather than debit or credit cards. Here are some of the key advantages:

Improved Financial Awareness: Using cash can help you become more aware of your spending habits. When you pay with cash, you are physically handing over the money and seeing the amount decrease, which can make the cost of a purchase feel more tangible. Whereas, paying with debit or credit cards can feel more abstract, as you are not physically seeing the money leave your possession. By using cash in practicing the envelope system, you can become more attuned to your spending and make more mindful decisions about where to allocate your money.

Avoidance of Debt: Credit cards can be a convenient way to make purchases, but they can also lead to debt if not used responsibly. When you pay with a credit card, you are essentially borrowing money from the credit card company and accruing interest on the balance if you do not pay it off in full each month. Using the envelope system with cash can help you avoid this cycle of debt by limiting your spending to what you have on hand.

Improved Budgeting Skills: The envelope system requires you to plan ahead and allocate your money to specific categories, which can help you develop better budgeting skills. By allocating a set amount of cash to each category, you can see exactly how much money you have left for the month and make adjustments as needed. This can be especially helpful for those who struggle with impulse spending or overspending in certain areas.

Enhanced Security: Carrying around large amounts of cash can be risky, but the envelope system allows you to limit the amount of cash you have on hand at any given time. This can be especially important for those who are concerned about theft or loss. In addition, using cash can help protect you against identity theft, as there is no information tied to the transaction that could be stolen.

Improved Financial Discipline: Using the envelope system can help you develop better financial discipline by requiring you to plan ahead and make conscious spending decisions. When you allocate your money to specific categories and physically see the cash depletion as you make purchases, it can be easier to stick to your budget and avoid overspending.

Improved Relationship with Money: The envelope system can also help improve your relationship with money by forcing you to confront your spending habits and make conscious decisions about how to allocate your resources. By using cash and the envelope system, you can better understand your financial goals and work towards achieving them.

Overall, the envelope system can be a useful tool for those looking to take control of their finances and avoid overspending. By using cash and allocating your money to specific categories, you can become more aware of your spending habits, avoid debt, improve your budgeting skills, enhance security, develop financial discipline, and improve your relationship with money.

Here to Help, 

Financially Fit Team

How Cryptocurrency is an Another Investment Avenue

There are many different types of investments to consider when looking to grow your money as you make your way through your financial career, such as stocks, mutual bonds, ETF’s, 401K retirement accounts and even real estate. One alternative investment type that not many consider is cryptocurrency. Cryptocurrency is another type of investment choice that has gained popularity since the early 2010s. To put this in perspective, one article written by CNBC said, “Nearly 40% of millennials and Gen Zers who own cryptocurrency plan to use it to make payments.” The question becomes, why would anyone consider investing in cryptocurrency? Before consideration, we must understand what cryptocurrency is, alongside the benefits and downsides.

What is Cryptocurrency?

According to Forbes, Cryptocurrency is described as "a digital, encrypted, and decentralized medium of exchange." As complex as it may sound, it is quite simple, the whole idea of cryptocurrency is based on the premise of providing an alternative form of payment. Most recently we have seen many businesses accept digital currency for various purchases. For example, Whole Foods accepts crypto payments for grocery purchases. Regal Cinemas accepts crypto payments for watching movies. Even Chipotle accepts crypto payments for food purchases. According to a CNBC article, “About 75% of them plan to begin accepting crypto or stablecoin payments within the next two years, according to a recent Deloitte survey.” Many retailers, restaurants, cinemas and other venues are now valuing cryptocurrency more than ever. This means that the dollar is slightly becoming less significant as its value heads on a steadfast decline. 

What is the Most Popular Cryptocurrency & How Do I Access It?

There many different digital currencies available to purchase and use, such as Bitcoin, Ethereum, Polygon, and Litecoin. However, for the purpose of this discussion we will focus on the two that are not only the most valuable, but also deemed the most profitable for both long term and short term investments. Starting with Bitcoin, this digital currency ranks number one as the most sought after long term investment coin in the market. Bitcoin is a decentralized digital currency that is primarily used as an alternative form for money. You can use it to pay for things and you can buy it to hold for as long as you want. The same goes for Ethereum, however this coin in particular has more utility to it because it serves as a way to buy items on the block chain which contains NFTs (non-fungible tokens). You can access both these digital coins on websites like Coinbase, Binance, eToro, Bitstamp and Gemini.  For more information on how you can gain easy access to cryptocurrency, read this article here.

What are the Benefits & Downsides of Cryptocurrency?

With every investment opportunity there are many benefits as well as downsides. Some benefits include self-managed, security, easy exchange, and decentralization. Decentralization is the number one benefit among the variables. Digital currency monopoly is non-existent, meaning no single entity can influence the sequence and value of the currency like Bitcoin and Ethereum. This proves to be more effective than the United States Dollar, due to the nature of the dollar being heavily influenced and controlled by the government (federal reserve). On the other hand, as mentioned previously, there are downsides. One of them is data losses. This entails when individuals lose their secured password and or private encryption reference to access the cryptocurrency, and it is unrecoverable. The premise of this is to protect the integrity of the digital currency, which suggests that when individuals make accounts to buy and / or trade cryptocurrencies to make sure to save their access codes, once lost that is the end of accessing your cryptocurrency account. Another downside is that there are completely no take backs. This implies a no cancellation policy when investing in any digital currency like Bitcoin, Ethereum and so on and so forth. Accidentally sending digital currency for specific transactions cannot be recovered, even when dire mistakes are made. It is important to be aware of the nature of dealing with cryptocurrency when using it for trading and or buying potential.

How Do I Know Which Digital Currency is the Right Investment? How Do I Avoid the Bad Ones?

The answer is continuous research for as long as you are interested and invested. Otherwise, investing in things based on speculation won't necessarily get you very far considering FOMO (Fear of Missing Out) risk would be at all time high. Understanding which cryptocurrencies to invest in is hard and there is not a concrete right answer. It depends on the nature in which you will go about using the digital currency. Whether it be trading daily, short and long term, it all requires different steps and preparation to make the initial steps. Every investment has a level of risk associated with it, and thus, acquiring knowledge on such ordeals help you prepare to mitigate it as much as possible. 

The Bigger Picture

Learning new investments can be difficult, but it doesn't have to be. It just requires patience and time. There is no need to rush - especially on something as controversial as cryptocurrency. Many experts have mentioned that Digital currencies are incredibly volatile. Jason Mitchell, the CTO of Smart Billions, a crypto website said, “Cryptocurrencies are becoming more and more integrated into our society with each passing day.” Even though they can be hard to understand right now, their usefulness continues to grow over the normal dollar today. Its ability to be independent from any governmental control and influence  grants a unique kind of perpetuity. 

Here to Help, 

Your Financially Fit Team

The Health of the US Economy Today

It’s November 9th, 2022 and where does the United States Economy stand as of now? After two consecutive quarters of negative growth, the economy now has shown its first positive upward trend at 2.6%. However, in our current economic conditions, the inflation rate is at 8.2% according to CNBC. Keep in mind, the economy two years before had an inflation rate of just 1.23% 2020. The inflation rate in the United States has increased over 7% in the last 24 months. So, while it is comforting that our economy seems to be on an upward trajectory, it is still worrisome that it took so long to upturn and that the inflation rate remains so high. This percentage can convey two things. One, there is an optimistic outlook on the positive side and two, this is also concerning because of how slow it has taken to recover and there may be a sign where it goes under again. 

The United States economy became recently positive due to a narrowing trade deficit. According to CNBC, “economists expected this and consider it to be a one-off occurrence that won’t be repeated in the future quarters. GDP gains also came from increases in consumer spending, nonresidential fixed investment and government spending.” Inevitably, caution needs to be taken with the economic playfield at this moment. Many Americans today are not spending as much as they were before the inflation rate increased. Consumer spending might be up, however, that doesn't mean consumer spending is at an all time high. GDP may also increase, however that doesn’t benefit many who are suffering other issues like job loss, lay-offs and or other situations

The United States economy as of now has shown indicators that it can recover and it can grow upward if certain conditions are followed correctly. Many of those conditions rely on the size of the workforce and productivity in this current climate. The size of the workforce matters, and data shows that only 164 million individuals are employed as of September. Compare that to September of 2021 which only had 161 million individuals employed. Even though there is a noticeable increase, it is a small one that is concerning due to how slow employment has recovered ever since the pandemic. A slight 1.5% increase in employment participation rate is still a cause of concern, possibly explained by the great resignation which has currently hindered job growth.

So what does this all mean? Under current economic conditions, the economy has underperformed in contrast to 2020. The verge of a standing recession is still in play, however, we are more prepared now than we were in the economic crisis of 2008. According to Steve Hanke, an applied economics professor at John Hopkins University explained, “The probability of recession, I think it’s much higher than 50% — I think it’s about 80%. Maybe even higher than 80%.” The question now lies is what kind of factors will contribute to a staggering recession in such a precedent that we have not faced in over 14 years? There are many factors that contribute to an economic collapse. These include high interest rates, declining home prices, deregulation and wage price warfare. However, one factor that has become unique in the current economic crisis is student loans. According to Investopedia, “Some experts believe that student loan debt could bring down the economy in much the same way as the 2008 and 2009 mortgage crisis.” Student loans are at an outstanding $1 trillion currently. For comparison, in 2010, student loan debt was at $100 billion. The increase of this kind of debt is astronomical. To add insult to injury, college tuition has skyrocketed past the percent of the inflation rate. Combine unaffordable college education with the current economy not being able to put the graduates to work causes economic fatigue and stress. Consequently, many college graduates who cannot pay back their loans will likely suffer bankruptcy.

As we continue to deal with our economic conditions, it is important to stay aware and protect your finances ahead of time. Individually, we can do our part, however, the other half comes from our elected representatives in government. The fate of economic progress and prosperity falls on the laps of our federal government. This year in particular, is of much importance with the looming midterm elections having taken place. Both political parties in congress have an opportunity to come together and pass legislation that can help take relief on many Americans who are employed, becoming employed and retiring.

Here to help and Inform, 

Your Financially Fit Team

The Great Resignation, Why It's Impacting Employers & Employees

The Labor Department issued that, “650,000 retail workers quit in the month of April in 2021.” Mass exodus in the midst of a global pandemic. What we’ve come to call the Great Resignation. What is the Great Resignation? If you are a working professional, you probably already know. It refers to an especially high volume of employees quitting their job, all over the nation, all over the world. The ultimate cause of this dilemma is pay. Think of this for a moment, a PwC survey reported that, "pay is unsurprisingly the main factor in people wanting to change jobs, with 71% citing it as a key reason."

When the pandemic hit its stride, out of necessity, employees began to work from home. Businesses began hiring remote workers, with no expectation that those new hires would need to come to the office - at least, not until COVID peters out. Working from home became the new normal. Employees got to stay in the comfort of their home. They experienced more flexibility, felt they had more trust from their employers. The average person spends one third of their life working, most often, away from their families. Remote work gave more options to parents with kids at home. According to chicagobooth, Nicholas Booth from Stanford said, “We are home working alongside our kids, in unsuitable spaces, with no choice and no in-office days. This will create a productivity disaster for firms.” Employers weren’t necessarily confident that they’re employees were being as productive as they would be in office, but at least they could keep their business running. Many bosses may have thought that when the pandemic ended, pre pandemic operation (in office) would return. But you cannot give workers more options and agency and take it away again without backlash. Here we are, post pandemic and employees are refusing to go back to the office. Either they stay remote, or they quit and go somewhere else that allows them to work from home. With the stimulus checks from the government and varying unemployment benefits, some people aren’t going back to work at all.

Not everyone can afford to join the Great Resignation, but after the last few years we’ve all had, employees are changing their priorities. In several cases, remote work improves their home lives, contributes positively to their mental health, prevents burnout and more. They feel that they are more understood by their employer. They feel that the work they do is valued higher than the hours imputed. Remote or in the office, employees want to be treated like real people, not just a cog who makes the machine go. Remote or not, employees are thinning out what they are willing to put up with. According to BBC,  the Personio study mentioned, “more than half of the respondents who were planning to quit wanted to do so because of a reduction in benefits, a worsening work-life balance or a toxic workplace culture.” Employees want employers to empathize with them, to more fully understand their priorities and be somewhat malleable to them. Employees are delusional if they think they’ll get everything they’re asking for, but employers are delusional if they think they’ll get away with offering the bare minimum. Dallas Mavericks owner and CEO Mark Cuban explained why, “this is bad because it will hurt the brand's reputation.” It contributes to the idea that C-suite professionals are money-hungry and soulless (dramatic, I know, but a stereotype more often proven then discredited). 

In times like these, employers should reflect on what they are manageably able to offer their employees. They should be aware of what workers are currently prioritizing and see if they can help meet those needs. An employee wants to prioritize their family? Remote work or hybrid makes a big difference. An employee is struggling with their mental health, offering services and good benefits makes a big difference. An employee is struggling financially, providing access to a financial advisor and services makes a big difference. As simple as it sounds, be there for your employees and they might just stick around for you.

Here to help, 

Financially Fit Employees