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How to cope with rising interest rates, inflation and market volatility

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Inflation, rising interest rates and market volatility have many Americans on edge.

Consumer prices rose 8.5% in March from a year ago, costing U.S. households an extra $ 327 a month, according to a Moody’s estimate.

To combat rising inflation, the Federal Reserve has begun raising interest rates. The central bank has already raised interest rates by 0.25% in March and has indicated that it is likely to implement a 0.5% increase in May. Meanwhile, 30-year fixed mortgage rates have already risen to more than 5%. That is an increase from 3.37% on January 5, according to Mortgage News Daily.

It all puts pressure on the housing market, where prices are still high and stocks are low, and the stock market, which was hit last month and remains volatile.

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“It’s going to be a much more tricky, difficult year when it comes to the economy and people’s finances,” said Mark Zandi, Moody’s Analytics chief economist.

With that in mind, here’s how to get through the tough economic situation that many Americans are now facing.

Market volatility

Fluctuations in the stock market can make you want to run towards the hills.

However, you should be focused on the long term. Any changes you make to that plan during periods of volatility can set you back for years, said financial advisor Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.

“The best thing you can do is control your own inner self: how you respond to stress, lessons you learn on your investment journey, and being battle-hardened so you can become a long-term investor,” he said.

“Remember, time in the market is more important than timing of the market.”

All the money you need in the short term should be kept out of stock so you are not forced to sell at a loss when you want access to them, Goldberg said.

Also, if you are about to retire, you might also want to be a little more careful, Zandi said.

This is because he has low expectations for the market over the next few years.

“Market prices for assets have skyrocketed because of the very, very low inflation and low interest rate environment we were in,” he said.

“We can not expect to see the kind of returns we made in the previous world we were in.”

Inflation

Customers pushing with shopping carts shopping in a supermarket on April 12, 2022 in San Mateo County, California.

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Zandi has predicted that inflation may decline after a peak around May. But inflation expectations are migrating higher.

“There are many different ways to measure expectations,” Zandi said. “They all say that people are beginning to believe that this high inflation has come to stay for a long period of time.

“If that is the case, it will increasingly come true,” he added.

To manage higher prices, you must first review your budget.

“You can make changes or move around your budget if you have the opportunity,” said Misty Lynch, a certified financial planner at Walpole, Massachusetts-based Sound View Financial Advisors.

“If you need it, cut back or change habits a bit to get a $ 175 grocery purchase down to $ 150, like buying less meat.”

Many Americans have already cut back on eating out, a recent study by CNBC + Acorns Invest in You showed. If inflation continues, they plan to turn down to eat out, drive and vacations, according to the survey conducted by Momentive.

If there are large ticket items on the way, such as a trip or a wedding, you can save money by planning ahead.

“Things are going to be super expensive at the last minute, and there’s just a lack of a lot of different things,” Lynch said.

Rising interest rates

Federal Reserve rate hikes affect the interest rate you pay on things like credit cards and equity loans.

This means that already high credit card rates will rise higher. Currently, the average rate is more than 16%, according to CreditCards.com.

Therefore, focus on spending any extra money you can save to pay down your debt. Lynch suggests starting with the cards with the highest interest rates. Others like to pay them with the highest balance first.

If you decide to transfer your balance to a zero interest rate card, make sure that you do not continue to accumulate debt, otherwise you are right back to where you started as the zero interest rate is only locked for a certain period.

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