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Low Interest Rates, Higher Inflation?

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Thank you for all the feedback on how to handle teacher gifts this year. I believe the consensus is clear, gift cards it is.

The election and unknowns and misinformation has our country at odds all the way across the board. No matter your politics, it is a sad state of affairs. No matter who won or wins, it is a sad and perhaps dangerous state we are in. And no, this is not going to be a political post.

But I heard that while the election has us all distracted, the chairman of something or other announced that while they plan to keep interest rates low, this governing body may elect it’s right to adjust for inflation. Or something like that.

Sorry, as you all know, the financial world is not my first love so I’m not well versed in most of it. But I am paying more attention. Not to mention, both of the girls are taking economics this year so we’ve had lots of discussions around it and their studies.

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How to Manage Your Money

Back to my point or rather question…so if interest rates stay low, but inflation goes up, how should we manage our money to survive it best? Especially those without large nest eggs or steady income.

My understanding is that low interest rates will make purchasing homes more manageable for more people. Yeah.

But higher inflation will push the cost of every days goods up…food, gas, etc. Which is bad in my mind. It will force everyone to spend more on every day items. Leaving us little choice but to up our budgets while incomes will most likely not rise.

Am I misinterpreting this?

Plan to Survive and Thrive

So BAD Community, my question is twofold, is what I am hearing and how I am presenting this correct? Is this what is coming?

And two, if it is true, what advice do you have for the average, debt fighting person to survive and even thrive in this type of economy?

Links to resources to learn more, read more would be greatly appreciated.


17 Comments

  • Reply Mrs. H |

    Honestly, attempting to predict inflation is a waste of time. Stay the course with paying down your debt aggressively, saving for retirement and other future needs and wants, and keeping a stash of cash in an emergency fund.

    Yes, inflation occurs…every year. That’s why we all have to look at our budgets from time to time and adjust for cost of living increases.But the price of eggs is not going to quadruple overnight. Your overall budget isn’t going to require a sweeping overhaul.

    Just stay the course. Paying down debt and investing/saving is always the best strategy.

  • Reply Angie |

    How to thrive? Ignore these articles and just live. Pay down your debts. Don’t buy things you don’t need. Save for retirement in the stock market, not in your savings account. Basically do what you always should be doing and you’ll be fine.

    A lot of these articles are pure speculation meant to drive fear into people. They’re mostly theoretical with a bunch of assumptions. No one can predict what is going to happen with the economy. Ignore them!

    And low interest rates don’t really help new homebuyers very much. The prices of houses goes up pretty much directly with the effects of the decreased interest rates. New homebuyers are just paying for that monthly difference in the price of the house. The ones who are benefiting from low interest rates are those who already own a house and can refinance at a lower rate.

    • Reply Drmaddog |

      Yes. Timing the market for anything is a gambler’s game. Rarely can anyone do it well and consistently. And if they can, their funds won’t be available to the average joe. Investing in the stock market is a way to hedge against inflation. One of the theories as to why the performance of the stock market is uncoupled with the general state of the economy is that it is pretty much the only game out there that offers a significant return with interest rates so low right now. So, people are pouring money into it to try to get a return.

  • Reply TENN |

    Best advice is to continue to pay down debt and have an emergency fund. That will give you the best flexibility in the future.

    Where I live, the housing market is hot. There are no houses to be found at any sort of reasonable price, which negates the impact of low interest rates.

  • Reply Lisa |

    I’m not sure where you are trying to go with this. You aren’t looking to buy a home or take on new debt so interest rates shouldn’t concern you. Inflation is a way of life, will it rise faster than it historically has? Who knows. Just worry about paying down your debt and saving for emergencies.
    I’m not trying to get political either, but if you referring to the presidential election, we already know who won, there is no “who won or will win.”

      • Reply Cwaltz |

        Some of you are going to be incredibly disappointed when you realise the fat lady has already sung and the election has not been overturned simply because of the innuendo of fraud. The latest update in Arizona was a loss for the admin today in court. Maricopa County will be certified. Yesterday the reported loss was in Michigan courts where a judge denied the request to delay the certification.. To date the only win the administration has had was not based on fraud but procedural questions in Pennsylvania. That state alone will not change the outcome of the election. Biden could afford to lose Pennsylvania AND Georgia and still have 270 electoral votes needed to claim the election win. The chances of there being two states where there was evidence of widespread fraud enough to change the margin of victory in addition to Pennsylvania having its decision being thrown out is marginal and unlikely. Courts decide things based on evidence not based on innuendo.

        • Reply Drmaddog |

          It also defies logic to suggest that the Democrats had a vast machinery in place to steal the presidential election while simultaneously failing to secure the Senate.

      • Reply Jessica |

        Just because Trump is a huge narcissist and can’t possibly imagine that the majority of people didn’t vote for him doesnt make it so. Although it is disappointing that so many people in this country did and care more about their money (and what he’s supposedly done for the economy) than other people.

        • Reply Rrr |

          That’s not true. I care about babies. Babies in humans. Guess they don’t count as people, right?!?!?

          • Cwaltz |

            I care about babies too. That’s why I support programs like WIC, SNAP, universal healthcare so they get proper medical care,the dept of education, and various programs that assist women once they’ve made a choice to take on an obligation that could last eighteen years or longer.

            Forcing women to have children they aren’t prepared to care for and that half the nation whines about having to pay for once they leave the womb is a recipe for disaster and particularly cruel.

          • Jessica |

            Ah yes, Pro Life too. Funny you made the distinction that you care about babies, because the way I see it is you can’t be Pro-Life without caring about all other human lives. It goes just beyond bsbies

  • Reply Joe |

    I agree that this doesn’t really seem to be something you need to particularly worry about. Especially strange to bring it up right now given that interest rates, while perhaps at their lowest now, have been historically low for more than a decade now. The rate of inflation has stayed remarkably flat in the USA for going on 3 decades.
    And if you want to really get into it, it would be good if you got yourself better informed beyond the level of “the chairman of something or other…”. This is a very complicated situation the world finds itself in. Better to leave those economic debates to the economists, and just focus on getting yourself out of debt.

    • Reply Cwaltz |

      Keep paying down your debt. Freeing up money in your budget is the best way to hedge against inflation. For the record, inflation, the way economists do it, is pretty imprecise. A core inflation basket does not even include food or fuel because of the volatility of these items. Think of it this way your budget may not necessarily look like their basket. Its great that a flat screen TV and electronics as a whole have come down in price but not super helpful when your basket is primarily composed of secondary education for your college aged kids instead of electronics or your basket has a large amount of health care because you now have health issues. There is a reason there have been conversations saying the elderly should have a different basket precisely because of that last example.

      As far as interest rates go you have fixed rate loans so it does not really matter if the Fed increases or decreases rates right now. In terms of home buying, last time you posted you were unsure of where you were going to live. Before you even begin to think in terms of home buying you need to figure these things out. Housing is a major expense and it can take around 7 years to recoup the costs associated with closing on a home so if you aren’t intending on staying in an area it can be an investment where you lose money if you don’t know your market. If you really feel you must start doing something on this the only thing I would suggest is create a line item in your budget labeled “down payment.” However do not buy a house without doing lots and lots of research. It’s an expensive investment that can not easily be discarded.

So, what do you think ?