The Federal Reserve recently raised interest rates, and while this is good news for savers, it can cause a strain on budgets and investors.
So, here are three things you can do to save your money and stay on budget:
- Make a budget: This may seem obvious, but tracking your spending and ensuring you’re not spending more than you can afford is essential. Creating a budget will help you stay on track and not overspend.
- Start an emergency fund: An emergency fund is a great way to ensure you have money set aside for unexpected expenses. In addition, having an emergency fund can help you avoid going into debt if something unexpected arises.
- Pay off high-interest debt: If you have any high-interest debt, such as credit card debt, it’s important to try to pay it off as soon as possible. The sooner you can pay off your debt, the less interest you’ll have to pay in the long run.
Why are interest rates so high?
Inflation is when the cost of goods and services increases, but wages don’t keep up.
Inflation is rising at its fastest pace in over a decade because there’s more money chasing fewer goods and services.
The Federal Reserve has held interest rates near zero since the Great Recession to spur economic growth.
However, with inflation accelerating, the Federal Reserve is preparing to raise interest rates later this year to slow things down and prevent inflation from spiraling out of control.
Make a budget
One of the best ways to keep track of your finances is to make a budget. Tracking your income and expenses is the only real way to know where your money is going each month.
This will help you see where you can cut back if necessary and give you a better idea of how much you can afford to put into savings.
Know Your Numbers
The first step in making a budget is to examine your income and expenses closely. For example, what is your monthly take home pay? How much do you spend on rent or mortgage payments?
What other bills do you have to pay each month? Include things like car payments, insurance, phone bills, student loans, etc.
Once you have all your expenses tallied up, you can start to see where your money is going each month.
Determine Your Priorities
Once you know where your money goes each month, you can determine your priorities.
For example, maybe you want to focus on paying off debt or increasing your savings. On the other hand, maybe you need to cut back on spending to afford a major purchase. Whatever your priorities are, make sure that your budget reflects them.
Find Ways to Save Money
After you’ve determined your priorities, it’s time to start looking for ways to save money. For example, maybe you can cook at home more often instead of eating out.
Maybe you can carpool or take public transportation instead of paying for gas and car insurance. Maybe you could get rid of cable TV or downgrade your cellphone plan. There are many ways to save money, so take some time to figure out what would work best for you.
Start an Emergency Fund
Saving for an emergency fund does not have to be complicated. You can start by setting aside a small amount of money each week or month.
Over time, this will add up, and you will have a nice cushion to fall back on if you ever need it. You can also look for other ways to save money, such as couponing or eating out less.
Another way to jumpstart your emergency fund is to get a part-time job or sell unwanted belongings. For example, if you have any items you no longer use, consider selling them online or having a garage sale. Any extra money you can bring in should be put into your emergency fund.
Pay off high-interest debt
If you have any high-interest debt, such as credit cards or personal loans, you must pay it off as soon as possible. The longer you carry this debt, the more it will cost you to make interest payments.
Consider debt consolidation if you have multiple high-interest debts. This will allow you to combine all your debts into one monthly payment at a lower interest rate.
In addition to saving you money on interest payments, paying off your high-interest debt can also save you money in other ways.
For example, if you have a home equity line of credit (HELOC) with a variable interest rate, your monthly payments could increase if rates go up.
You can save yourself from these higher payments by paying off your HELOC balance. Additionally, if you have any revolving credit lines—such as a credit card with a balance—the lender could raise your interest rate if you make a late payment or miss a payment entirely.
So, again, you can avoid these higher rates by paying your balance in full.
Why Paying Off High-Interest Debt Will Improve Your Credit Score
Your credit score is one of the most critical factors in your financial life. This three-digit number affects everything from whether you are approved for a loan to the interest rate you will pay.
A good credit score can save you thousands of dollars over the life of a loan, while a bad credit score can cost you just as much.
One of the primary factors in your credit score is your “credit utilization ratio.” This ratio compares the number of revolving credit lines (such as credit cards) you use to the total number of available credit lines.
Higher interest rates can be challenging to keep up with, but there are ways to protect your money against them. By making a budget, starting an emergency fund, and paying off high-interest debt, you can ensure that your money is safe no matter what happens with interest rates in the future.
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