High inflation concerns: Avoid these 5 things now

Everyone is concerned about their money — and for a good reason. The Fed raised interest rates Wednesday, and it’s expected they could raise them 4-5 more times this year. The immediate impact will be that borrowing money is more expensive, and your primary savings might improve slightly.

Home and car prices may not jump significantly, but the interest you pay to borrow money to buy them is already increasing significantly. Here’s what that means in real dollars. Mortgage rates were commonly 3.5% earlier this year, but now they are approaching — and surpassing in some cases — 7%. This example is using the bankrate.com mortgage calculator.

The average interest rates on cars are trending up too. If you have a good credit score, you can get a better rate (around 7.85%), but that soars as high as 20% as your credit score drops. See details here.

With rising prices on everything from groceries to gas to clothes to plane tickets, there are five things to avoid during these hyper-inflationary times.

1 Robbing your 401k or other retirement plans. Yes, don’t rob your retirement. It’s not the time, and you lose twice. You don’t want to steal from your future to pay for your present, especially if you incur withdrawal penalties and interest. There are other ways to win with your money and wade through tough times. It’s generally a good rule to leave your retirement accounts untouched by crises and economic downturns. After all, you don’t want to develop the habit of robbing the piggy bank that will pay you when you retire.

2 Major spending. We’ve said this repeatedly, but it’s a good time to avoid significant items like cars, boats, and vacation trips unless necessary. Bidding wars have erupted for new and used cars, and the prices are $50,000 higher than only a year ago in some cases. Sooner or later, that value will deflate, and it may be easy for you to be upside down on your vehicle.

3 Get rich schemes. These are terrible anytime, but they are horrific during tough times. The FTC reports a significant increase in these get-rich schemes during and after coronavirus. Schemes that play on your emotion and fears often leave you in a worse situation than you started. At best, you have lost valuable time you could be using to better your situation. It’s easy to see the apparent scams. But any promise of quick money should be a warning. Regardless of what you think about Bill Gates, he’s won with money. He’s warning now about cryptocurrency and the ever-so-popular nonfungible tokens (NFTs). Another trap is 0% credit card transfer and 0% interest on cars and furniture. Beware, as these are adept at sucking you in with “buy now, pay later” promises. The “pay later” often has traps and penalties.

4 Leaving cash lying around. If you’re fortunate to have some money in your account, don’t let it sit there unattended. Invest it somewhere. Even a money market account is worth more than your savings or checking account. Still better, if you have projects around the house, it may be a good time to invest there — especially if those investments add value to your home. Remember, your house is likely to increase in value over time — it does not depreciate like a car, boat or other items. The good news is that higher interest rates mean that your savings, money market and other similar accounts will also increase eventually.

5 Over-reaction and panic. It’s not the time to respond or react emotionally. Double down on the numbers, the spreadsheets or whatever you use to manage your finances. It’s also a good time to double down on your four walls. Take a deep breath, get sound advice and take action. Most importantly, don’t make significant decisions when riding an emotional roller coaster. Find someone you can discuss big decisions with and someone who will be an accountability partner for you. It’s always good to talk through things with someone you trust. We offer a free consultation to help you develop a game plan.

Bonus. Run from credit cards. As interest rates go up, credit cards will jump quickly. According to Lending Tree, the average APR for a new credit card is 20.17%. See details here. The best advice is to pay them down quickly, as much as possible. And don’t use them, or at least pay them off every month. As mentioned above, avoid the 0% temptation to kick the can down the road. Here’s why.

These are not normal times (as if we’ve had normal times recently). It’s a time to pay attention, not become emotional and take action.