When the Federal Reserve changes interest rates, it has a ripple effect that affects every facet of the economy. That includes everything from credit card rates to the cost of buying a home.
The Fed typically lowers rates when our economy is weak and raises them when it’s strong to help combat inflation. When the Fed raises rates, it makes it more expensive for consumers to borrow money, which slows consumer spending and cools the economy.
But higher rates also mean savers can earn more on their bank deposits. In this way, the Fed can incentivize savings while simultaneously making it more costly to borrow.
When determining how to manage your finances, you should always think about the long-term effects of interest rate changes. Then you can decide how to take advantage of rising or falling rates for maximum financial benefit.
One simple way to ensure that you’re saving is to adopt the “pay yourself first” mentality. Each pay period, before the money hits your checking account, commit to putting a set amount of funds into your investment accounts, retirement, or emergency savings. Treat it as a recurring bill you owe yourself, and soon you’ll find it’s easier to make savings a priority.
Another easy way to save is to look for ways to cut expenses, whether that’s by packing your lunch instead of eating out or cutting back on subscription services you never use. You can free up hundreds of dollars each month to put toward your savings goals.
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