With 2023 off to a furious start, we may not soon forget the woes of 2022. In addition to a bear market, those woes include higher-than-normal interest rates that will linger into the new year. In this article, we will look at three (there are more) key ways interest rates impact your budget.
Mortgage
As fans of Dave Ramsey, we subscribe to the notion that debt is not a good idea. A mortgage can be a good wealth-building tool, but it’s best not to get in over your head. We advise our clients to secure a 15-year mortgage loan that has a fixed interest rate. This ensures that you are not locked into a 30-year agreement and that you’re not subject to the volatility of the current interest rate environment. Budgeting is easier when you know what you’ll be paying. The mistake that some people make is going with an adjustable-rate mortgage, thinking that they could potentially see a decreased rate in time. The reality is that adjustable-rate mortgages are bad; they could leave your mortgage payment subject to a sharp increase when the annual adjustment hits. If you’re considering buying a home, don’t let the interest rate environment hurt you – go with the 15-year fixed-rate mortgage once you’ve paid off all your other debt.
Student Loans
It is likely that if you have student loan debt, you have been paying a fixed rate since taking the loan initially. That hasn’t changed and won’t change due to the interest rate environment. Like a home loan, the Fed’s policy can’t touch fixed rates, but it will impact loans of future debt. If you’re planning on sending your kids to college, it’s best to start saving for the expense now and pay with cash when the time comes. You can open a 529 plan specifically for education expenses and we were recently granted some flexibility via the Secure Act 2.0, which states that unused 529 funds can be rolled into a retirement account penalty-free. If there weren’t already enough reasons not to lean on loans to pay for school, now you’ve got one more.
Car Loans
A car is pretty much a necessity these days unless you live in Manhattan. But buying a car on credit that’s worth more than your salary is not. The temptation is real, but the negatives far outweigh the positives when it comes to interest rates. Though car loans are most likely fixed-rate loans as well, any new car loan in this environment is going to bleed you dry. Cars are notoriously bad investments, so why buy a new one, especially on credit? A home goes up in value almost every time, whereas a car loses value the minute you drive it off the lot. Avoid paying interest altogether and buy an affordable used car, that gets you from point A to point B. Then, when you have your ducks in a row and feel the need for speed, buy a car that you really want with cash. A good rule of thumb to follow is this: If you don’t have the cash, you can’t afford it. In today’s instant gratification, mobile-pay environment this might seem like insanity, but in reality, buying something with someone else’s money is a lot crazier. That’s why Dave Ramsey always says, “Cash is king and debt is dumb…”
Buying on credit is a craze that’s swept society, we get that. At Whitaker-Myers, we have a team of professionals who want to see you live a debt-free lifestyle and avoid the perils of borrowing your life away. If you struggle with budgeting and feel like you just aren’t making any progress, reach out to our financial coach, or talk to an advisor today. We’d love to help you live like no one else so that later on you can live and give like no one else.
Inflation’s Impact on Your Debt
January 5, 2023
Nick Allen
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.
Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
