How to Make Your Dollar Stretch with Today's Interest Rates in 2023

How to Make Your Dollar Stretch with Today's Interest Rates in 2023

Interest rates have been rising since March 2022 until very recently, when the Federal Reserve decided to put a hold on the increments. Now at 5.00% to 5.25%, interest rates are still high enough to impact borrowers, and rates may hike again if inflation gets out of control. The result of these fluctuations is a volatile economy and an evolving financial landscape where stretching money has become a significant skill, demanding finesse. For that reason, individuals looking to make significant financial decisions, such as venturing into real estate markets, have to be proactive in their savings approach.

Importance of Stretching Money in Today's Economic Climate

Money has always been a limited resource, which is even more true in today's competitive and fast-paced economic climate. In addition, inflation is on the rise, and economic uncertainties loom on the horizon. Because of this, individuals need to stretch every dollar of their hard-earned money. By making smart economic decisions, individuals make significant investments, such as buying homes, while still being in control of their financial security.

The only caveat is the changing interest rates which present complexities during saving and borrowing. Individuals must grasp the current dynamics of interest rates and employ working strategies that will maximize their frugality. Below is a simple step-by-step guide on how to take the changes in interest rates to your advantage.

Understand the Current Dynamics of Interest Rates

Interest rates typically measure how much a borrower pays to a lender as an incentive to borrow their money. They form the basic foundation for the economy, including the circulation of money and inflation. Staying informed of the current interest rates and their effect on the economy is a good starting point for stretching your dollars.

When interest rates decrease, people get more credit access, creating an economic boom and inflation. The opposite is true; when interest rates are high, lines of credit become increasingly challenging to access, leading to less circulation of money and hence deflation. These two rules are the guiding principles behind the Federal Reserve's interest rate policies. Low interest rates also result in lower returns on savings accounts, while higher interest rates have the inverse effect.

Invest in Savings and Money Market Accounts

Interest rates have seen a general upward trend over the past several years. Until July 2023, the Federal Reserve kept increasing the rates for ten consecutive times to moderate inflation. While the increments may have been halted, the rates will likely continue upward if the recent trend is any indication. Those looking to save are encouraged to invest in high-yield savings and money market accounts.

Money market accounts require higher balances but give a higher interest rate than the typical savings account. In addition, they have a better return rate than regular savings accounts. The national average yield for money market accounts is 0.31%, while savings accounts are 0.23%.

Avoid Debt

In a world fueled by consumerism, it's easy to fall into the trap of debt, which, if not properly managed, can quickly spiral out of control and leave the borrower trapped in a cycle of interest payments. This can end up reducing their ability to save and invest. The effects are more likely to worsen in times of high-interest rates, like now. Adopting a responsible approach to finances is crucial to avoid falling into the debt trap. Be sure to reevaluate your spending habits and eliminate any unnecessary expenses.

Adopt Smart Spending Habits

Frugality is an essential skill in the 2023 highly volatile economy, where excessive extravagance could necessitate taking high-interest loans. It is important to pinch pennies and avoid borrowing for non-essential items. A simple way to adopt smart spending habits is by creating a budget based on disposable income and a list of expenses in order of priority. By making conscious spending choices, you can prevent the accumulation of high-interest debt, freeing up more money for savings and investments.

Stay Away From Bonds

Investing in bonds is discouraged under the current interest rate environment, where interest rates are likely to increase in the near future. Bonds and interest rates have an inverse relationship whereby an increase in interest rates results in a decrease in the value of existing bonds and vice versa.

The strange correlation between bonds and interest rates is that bonds represent fixed-income securities with predetermined interest payments, commonly known as coupon rates. An increase in interest rates leads to higher coupon rates for newly issued bonds. This makes them more attractive than existing bonds, which in turn, fall in value. The same holds for falling interest rates.

Invest in Real Estate

As already mentioned, interest rates are currently at a halt, with the likelihood of an increase in the foreseeable future, given past trends. That makes now an opportune time to get into the real estate market and leverage the current interest rates before they increase.

Those looking to buy real estate need to evaluate the current interest rates against the corresponding rate of return for vacation homes or the projected appreciation for primary residences. The best way to do this is by leaning on local real estate agents or financial advisors. Negotiating a good deal will also go a long way in stretching your dollars. The best way to handle negotiations is by enlisting the help of real estate agents.

Stretch your Dollars by Investing in Los Angeles Real Estate

Los Angeles's real estate market is strong, with increasing demand and rising home prices, making it a great investment. If you want to capitalize on the strength of this market, work with EVJ Homes. Their expertise and dedication have resulted in them being recognized as one of the most reputable real estate brokerages in Los Angeles and other California beach cities. Contact EVJ Homes to find Los Angeles homes for sale today.

*Header photo courtesy of Shutterstock

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