Everything You Need To Know About How The Rate Hike Will Affect Your Wallet

 By Maggie McGrath ,

Forbes Staff

Got one eye on the markets, the other on Gen Y's pressing $$ issues

For the first time since 2006, the Federal Reserve has announced that it will raise interest rates by 25 basis points. This means that it is increasing the target for short term interest rates to a range of 0.25% to 0.50% from a range of 0% to 0.25%. 
Within minutes of the Fed’s decision Wednesday, Wells Fargo, JPMorgan Chase and US Bancorp became the first banks to announce that they would increase their prime rate, a rate used for consumer loans like mortgages. Effective December 17, the prime rate at Wells, JPM and US Bancorp will move from 3.25% to 3.5%. Later in the afternoon, Citibank announced a similar move; many other banks are likely to follow suit.
Yet despite this and despite all the hubbub surrounding the Fed’s decision – journalists and Fed watchers have literally been talking about a rate hike for years – the immediate impact to consumers’ wallets will be virtually indiscernible. Fed chair Janet Yellen even said as much in her Wednesday afternoon press conference.
It is a very small move. It will be reflected in some changes in borrowing rates. Longer term interest rates, loans that are linked to longer term interest rates, are unlikely to move very much,” Yellen said. “For example, some corporate loans are linked to the prime rate, which is likely to move up with the Fed Funds rate, and those interest rates will adjust. I think credit card rates that are linked to short-term rates might move up slightly. But remember, we have very low rates, and we have made a very small move.”
Put another way: ”The impact of a single quarter-point interest rate hike is virtually inconsequential. You won’t notice it,” said Greg McBride, chief financial analyst at Bankrate.com. “But: this could be the start of a series of interest rate hikes, and the cumulative effect of those could be significant over the course of the next couple of years.”

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By all indications, Wednesday’s rate hike is indeed the start of an upward trend — but a gradual one at that. The Federal Open Market Committee said Wednesday that “economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Here’s a look what exactly all of this means for each facet of your wallet:
Student loans. If you have a fixed-rate student loan — which you do if you borrowed from the federal government after July 1, 2006, or locked in a fixed-rate private student loan — Wednesday’s decision means nothing to you. Your rate will stay the same.
If you have a variable-rate student loan, you will see your rate start to fluctuate. Assuming you have a variable-rate loan that bases its rate on LIBOR (the London Interbank Offered Rate), this fluctuation will occur on a monthly basis. And whether or not this uncertainty scares you enough to refinance your loan into a fixed-rate depends on both your tolerance for risk and the duration of the loan you hold.
“If you have a variable rate, you’re taking on the uncertainly of how the Fed will raise rates and by how much,” explained David Klein, CEO and co-founder of alternative lender (and student loan refinancer) CommonBond. The Fed did not indicate on Wednesday when it will raise rates again — but, Klein explained, if you hold a 10-year variable rate loan, you’re exposed to much greater uncertainty than someone who holds a two-year variable rate loan. “Rate movement is more restricted [over two years] than the movement and uncertainly you’d see over 10 years,” he said.
For more on how the Fed’s decision affects student loans, check out this article here.
Mortgages. The rules for mortgages are roughly the same as those for student loans: if you have a fixed rate mortgage, you needn’t worry. If you have yet to take out a mortgage but plan to do so in the future, you will receive a slightly higher rate than you would have if you had locked in your rate during 2015 (or 2014, or 2013… you get the point). And if you have an adjustable-rate mortgage, you will see your rate go up.
Bankrate’s McBride noted that adjustable-rate mortgages only adjust once per year — so it’s not as if you will see your payments fluctuating on a monthly basis. However, this means that “the Fed could raise rates two or three times becore your rate adjusts. Then you’re looking at a significant rate increase,” McBride said. In his view, folks who have an adjustable-rate mortgage would be best served by locking in a low fixed rate while they still can — i.e, before the Fed makes further changes to interest rates.
“That’s the urgency now,” he said. “That adjustable rate mortgage at 3%, which could easily be at 5% in a couple of years, you could trade that away for a fixed-rate mortgage at 4%.” 
Savings accounts. McBride has some bad news for every consumer who is hoping the rate increase will bring a commensurate increase to the interest rates applied to savings accounts.
“We are not going to see an improvement right off the bat,” he said. “A lot of banks are sitting on a pile of deposits, and their margins have really been squeezed by low rates. So the incentives for banks is to pass on higher rates on loans but not deposits so they can breathe some life into that margin.”
There is a smidge of silver lining: McBride said that high-yield savings accounts — i.e, those that offer a rate of 1% or more — are likelier to raise their own rates. “Not only are you likely to benefit now, you are likely to benefit down the road.” 
Credit cards. If your credit card agreement says something to the effect of “APRs will vary with the market based on the Prime Rate,” you will likely see your rate go up by 0.25%.
“Credit cards are the standout category where we can expect interest rates to rise, but we estimate the impact will be relatively small,” said Sean McQuay, NerdWallet’s credit card expert. On a dollar-for-dollar basis, change does not translate to significantly higher payments, he said. ”NerdWallet has done the math and found that the average indebted American household can expect to spend an additional $125 in credit card interest over the next five years. While that’s still real money, this shouldn’t significantly impact your financial standing.”
Bankrate’s McBride also noted that the rate hike will also mean fewer credit card promotions that offer a 0% APR for a long introductory period (like, say, 18 months).
“As the Fed moves away from 0% interest rates, eventually credit card issuers will do the same,” McBride said. The key word, though, is eventually. “It’s not going to happen overnight. As rates go up, the rates on the offers you see will go up,” he said. “Or, the promotional time period in which the offer is good will shrink. The 0% offers for 18 months that are out there now? They won’t be around a year from now.”
HELOCs. If you have a home equity loan (also known as a home equity line of credit, or HELOC) and are in the interest-only portion of your loan, your monthly payment will get higher with a rate hike. But as with virtually every other item on this list, the increase should not break your back.
“An increase in 25 basis points is only going to cause customers’ monthly payments to go up about $10 to $11 per month” assuming it’s a $50,000 HELOC, explained Mike Kinane, head of mortgage and consumer lending products at TD Bank. “That’s not cause for triggering a refinance. Rates are still historically low.”
Kinane emphasized that though home equity contracts are typically written using the Wall Street Journal prime rate (which, in turn, is affected by the Federal Funds rate), it’s best for consumers to look at their contract so they can see exactly how the rate will affect their payment.
Your portfolio. In short, the Fed’s move is bad news for bonds, mediocre news for the equity markets and, according to one expert, good news for commodities and stocks relating to consumer goods, food and utilities.
According to Dr. Robert Johnson, the president of the American College of Financial Services, the bond market will move according to simple math: “as interest rates rise, existing bond prices fall, because newly issued bonds have higher yields.”
On the equity market front, the picture is mixed. For his book “Invest with the Fed,” Johnson (along with Gerald Jensen and Luis Garcia-Feijoo) studied a 48-year period of equity market returns and found that stocks performed significantly better in a falling-interest-rate environment than a rising rate environment. ”Over 48 years, the S&P 500 returned 15.2% per year when interest rates were falling, and returned only 5.9% when interest rates were rising,” he said.
Though the Fed’s decision had an immediately negative effect on oil Wednesday — the price of crude oil dropped 4.5% in late Wednesday trading — Johnson said that his research has shown that commodities performed “dramatically” higher in rising rate environments than in falling rate environments. He’s also found that the stocks of consumer staples, food and utility companies tend to do well in rising rate environments, because “people have to heat their homes, brush their teeth and buy gas for their cars no matter what conditions the markets are in.”

WASHINGTON, DC – DECEMBER 16: Federal Reserve Bank Chair Janet Yellen holds a news conference where she announced that the Fed will raise its benchmark interest rate for the first time since 2008 at the bank’s Wilson Conference Center December 16, 2015 in Washington, DC.  (Photo by Chip Somodevilla/Getty Images)

Culled Forbes

Inflation, the invisible hands that may derail your Happy Retirement- Odunze Reginald C

According to investopedia, it stated that “Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service”.  While Wikipedia noted that “In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.”

And according to Wikipedia, Nigeria’s inflation rate stood at 8.3 percent as at July 2014 and as at December 2014 stood at 9.2 percent according to Trading Economics, the country of Venezuela has the highest inflationary rate of 60.9 percent as at May 2014 while Italy has the lowest inflationary rate of -0.9 percent as at July 2014 according to Wikipedia.

But according to Michelle McGagh  of citywire.com she observed that “Pension savers are still in the dark about the impact the ‘inflation switch’ brought in by the government two years ago will have, despite the possibility that it could wipe 25% off their retirement income.” They went on to say that “Research by human resources business, Aon Hewitt shows Brits do not understand what effect the switch from the retail price index (RPI) to the consumer price index (CPI) has had” .
The article went on to say that “Two years ago, the government announced plans to move the indexation of pensions from RPI to CPI. It did this because CPI rises a lot slower than RPI, as the latter includes housing costs, so it means the state pension will rise more slowly, as will public sector pensions, costing the government less money.  When it comes to private pensions, the amount they pay out could also increase more slowly as many are tied to inflation, and would have adopted CPI instead of RPI.”

Although the article based their research on the situations in Britain, but the aftermath of globalization does indicate economy does not exist in isolation stressing that what affects one economy will definitely affects the other. This was the view of the world 3.0 mindset. And according to Nathalie Bonney  in article captioned “How rising inflation can destroy your pension” which appeared in Money Observer, the article noted that “Anyone who has bought a fixed annuity [which provides a regular income for life] could see the value of their pension erode significantly over time,' says Dr Ros Altmann, Director General of Saga.

She adds: 'The longer they live, the poorer these pensioners become, as the real value of their fixed pensions is reduced by inflation.'So how does inflation affects your pension pot?  Nathalie noted that “Any cash savings are hit because the low interest returns on savings accounts cannot compete with the rate of inflation. Pension pots face a similar challenge with money losing value over long timescales”
If inflations are hitting Europeans and American who at times have negative inflationary rate what happens to Africans with one or two digits inflationary rate.
What it portends is that your pension pot may not carry you through during retirement. This is because during period of inflation, what N100, 000 can buy in previous years may not purchase up to N 75,000 during period of inflation. How then do you protect your pension pot during inflation? You may have nothing or less to do to protect your pension pot during inflationary period.  But the decision you take in either choosing programme withdrawal or annuity will offer the necessary succor.   Because those who are more likely to be hit by inflation are those on annuity as they have a regular income without investment, as the investment that comes into their pension; go to the pool of fund and not the annuitant; although they may continue to receive pension throughout their life time, but the value over time may be eroded by inflation.
What happens then, when the situation described above hit the retirees, coupled with the delicate health nature of men and women above 65 years? Will it shorten their lifespan? Will it impact negatively on them? Definitely yes, but the survival of the individuals involved is a function of their ability to absorb situations and their mindset, for those who have positive outlook; the impact will be less devastating compared to those with negative outlook.
For a detailed discussion on inflationary impact on pension, join our discussion group with African pension managers at the Linked in.

Odunze Reginald is the Lead Consultant, Chareg Consulting, a management and marketing consultant, a social media and social marketing consultant , you can visit our twitter anchor @regydunze, find us on Facebook @ Reginald odunze and reginaldodunze.com, at google+ @ Reginald Odunze and at Linkedin@reginald odunze.

The 5Rs of Pensions- Odunze Reginald C

Pension annuity incomes 'hit all-time low' - Telegraph

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Savers have seen their annuity incomes fall to a reported all-time low

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And as Robert Kiyosaki  will say his book Rich Dad, Poor Dad that  “an individual’s reality is the boundary between faith and self confidence, and a person’s financial reality will not clear until he or she go beyond the fears and doubts of his or her own self imposed limits. Be as a time will come when a retire will exit

Retirement: This is the normal retirement based on the 35 years of service or 60 years of age, it may also arise as a result of medical impairments where the employee may be advised to retire on the advice of a medical board.  Section 2 subsection a b and c and section as it relates to medical issues of the Pension Reform Act 2004 and section 7 subsection 1, paragraphs a, b, and c PRA 2014

Retrenchment:  This is where the employee had been disengaged as a result of one or the other, which may be limited to organizational restructuring, acquisition and merger or any other factor that may result in the loss of job. Sect ion 7 subsection 2 PRA 2014

Right sized: where the employee was disengaged as a result of not meeting up with requirements of qualifications etc

Redundancy: where in the interest of company, the employee may be disengaged as a result of the company not doing well, or the company is transiting to another, or is changing business and structures, or they are not getting contracts as in most construction companies. There is the likely of being called back in Redundancy.

Resignation: In resignation, the employee out of his own decision may exit, he may have been offered a better opportunity, or is leaving for a private business, politics, and leisure. In the previous act ,PRA 2004 the scheme did not make provisions for resignation, except in some instances in the banking sector, where they may be advised to resign against their will in order to ensure their record  is not dented, but in the PRA 2014, all the provisions of exit were clearly included.

It should be noted that at the point of entry, organizations has clear cut information on exit strategy. What then will employees do? The best they can do is to adjust their own exit strategy so as not be affected, because most time exit may as a result of unforeseen circumstances. Therefore employees require careful planning, sustained contribution and an alternative investment option to be able to survive in the event of the one 5Rs appearing early in their working life.

One of the key issue of 5Rs is that early withdrawal always impact negatively at the long run both in terms investment outlay and the total pension pot or what we may refer as the total retirement savings account balances.

In article captioned  “4 dangerous assumptions that could hurt retirement plan” ,which appeared in Morning star,  Christine Benz noted that  ”Continued portfolio contributions, delayed withdrawals, and delayed Social Security filing can all greatly enhance a retirement portfolio's sustainability. Given those considerations, as well as the ebbing away of pensions, increasing longevity, and the fact that the financial crisis did a number of setbacks on many pre-retirees' portfolios, it should come as no surprise that older adults are pushing back their planned retirement dates. Whereas just 11% of individuals surveyed in the 1991 Employee Benefit Research Institute's Retirement Confidence Survey said they planned to retire after age 65, that percentage had tripled--to 33%--in the 2014 survey. In 1999, just 5% of EBRI's survey respondents said they planned to never retire, whereas 10% of the 2014 respondents said that”.

Continuing Benz noted that “With that in mind, there appears to be a disconnect between pre-retirees' plans to delay retirement and whether they actually do. While a third of the workers in the 2014 survey said they planned to work past age 65, just 16% of retirees said they had retired post-age 65. And a much larger contingent of retirees--32%--retired between the ages of 60 and 64, even though just 18% of workers said they plan to retire that early. As Morningstar.com assistant site editor Adam Zoll discusses and observed the following factors, -the variance owes to health considerations (the worker's, his or her spouse's, or parents'), unemployment, or untenable physical demands of the job, among other factors.”

                                                                                     

Odunze Reginald is the Lead Consultant, Chareg Consulting, a management and marketing  consultant  a social media and social marketing consultant , you can visit our twitter anchor @regydunze, find us on Facebook @ Reginald odunze and reginaldodunze.com, at google+ @ Reginald Odunze and at Linkedin@reginald odunze.

 

 

25 ways to improve your finances in 2016 - By Kimberly Palmer

 

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A new year often inspires new habits, including financial ones. If you want to put yourself on a path to build wealth throughout the year, then consider these 25 steps, all of which are designed to help you rein in spending and work toward greater financial security. They include both offensive moves, like saving more, as well as defensive ones, like protecting yourself from identity thieves.

1. Set your goals early and share them.
Sharing financial goals with friends -- and even strangers through social media -- can help you articulate just what those goals are and also hold you accountable. Indeed, research on goal-setting suggests that making public statements about goals helps people commit to them, whether they be money or health related. As 2016 kicks off, consider sharing your goals on Facebook, Twitter or a social goal-setting site like Linkagoal.
If you're stuck, flipping through images can help inspire and focus goal-setting, says Ellen Rogin, a financial services professional and co-author of "Picture Your Prosperity: Smart Money Moves to Turn Your Vision into Reality." She encourages people to flip through motivational images such as beaches and sailboats when planning their retirement. This exercise is especially useful for partners to make sure they're on the same page.
2. Guard against identity theft.
Identity thieves can steal not just your money but also your identity, which allows them to create new, fraudulent accounts in your name. The cost can add up to tens of thousands of dollars as well as hours of your time trying to rectify the situation.
One of the most common online identity theft methods is for an attacker to send an email with a hyperlink that leads victims to an official-looking site that requests personal information. People can be fooled into sharing their names, addresses, credit card numbers and even Social Security numbers this way. To keep yourself safe, avoid clicking on unfamiliar URLs sent to you via email, even if at first glance they appear to be from your bank or a retailer.
3. Get more out of your workplace benefits.
If you're lucky enough to have a job with benefits, then it pays to make sure you're getting as much out of them as possible. Aside from salary, take a close look at available retirement accounts (making sure to pick up any matching benefits), flexible spending accounts, financial literacy programs and wellness support, which can include free counseling. Health insurance and disability insurance can also help protect your finances in the long term.
4. Use tools to help you save more.
Apps can make it easier to protect bank accounts from fraud and save more money, and it can pay to use them. Some of the best entrants in the field include BillGuard, an app that flags potential fraudulent charges or errors, and Key Ring, which collects your loyalty cards digitally, so you can snag savings even if you leave your cards at home.
Other useful financial tools include PriceGrabber and RedLaser, which help you quickly compare prices when shopping online or in stores, and PriceBlink, a browser add-on that lets you know if there is a lower price elsewhere online. Mint offers a free budgeting tool to help you track your spending, and You Need a Budget is another good option.
5. Become more financially literate.
Financial literacy is a key factor when it comes to adults building wealth over time, according to research at the University of Massachusetts. If people understand basic concepts when it comes to saving, investing and compound interest, then they are more likely to sit on a significant nest egg as they get older. That's why making an effort to educate yourself, whether through workplace education programs or online tutorials, can pay off.
6. Get on the same financial page as your partner.
Coordinating your spending and saving habits with your partner can not only lead to a smoother relationship, it can also mean more money in your joint bank accounts. The blogging couple Derek and Carrie Olsen of derekandcarrie.com suggest holding a monthly get-together to review finances and to share one bank account, which can ease coordination. They also advocate developing a five-year plan, which can help guide daily choices.
7. Simplify your digital life.
If you're often tempted by emails promising amazing deals and killer savings, then you might want to consider unsubscribing from the dozens of retailer email lists you may have unknowingly signed up for. The tool Unroll.Me makes it easy; with a few clicks you can either unsubscribe or opt for a daily "Rollup" email that you can peruse at your leisure, instead of constantly getting pinged by unimportant emails all day long.
8. Prepare your money to age well.
As you get older and prepare to retire, it's important to make sure your money will last. That means ensuring your investments are in a portfolio that's aggressive enough to outpace inflation and reviewing your budget for any big leaks. You can also ask your bank what services they have in place to protect older adults from fraud
9. Learn from millennial spending habits.
Millennials might still be at the relative beginning of their financial journeys, but they have some useful habits to teach the rest of us. Young consumers who experienced the Great Recession as they were coming of age tend to be savvy shoppers, maximizing coupons and savings. They also cut costs by taking on DIY projects and prioritizing expenses that are most important to them, like travel.
10. Spend less on food.
Food might be one constant in our budgets, but there are still ways to trim those costs. Buying in bulk, cooking at home as much as possible and cooking meals that can be stored in the freezer for later are among the smart strategies. By planning meals and keeping perishable items visible at the front of your fridge, you can also help minimize waste.
11. Pay off expensive debt.
If you're still carrying around expensive debt in the form of credit card debt or other loans, then it's time to make a plan to pay it off. In "The Debt Escape Plan," author Beverly Harzog suggests doing just that by setting specific targets for yourself (for example, pay off one credit card by April) and getting the support you need in the form of a credit counselor if necessary. You might also want to look for ways to scale back spending while simultaneously earning more money, which can then be put toward the debt.
12. Know how to start over if you need to.
If you've had a rough 2015 and 2016 is about rebuilding, then you might want to focus on prioritizing savings and re-establishing your credit, especially if it has been destroyed by previous troubles, like filing for bankruptcy. Financial experts suggest going slow, making on-time monthly payments, to eventually reach a higher credit score.
13. Use social media to improve your finances.
Facebook and Twitter aren't all fun and games; social media tools can also help you manage your finances. Tweeting to a retailer about a customer service concern is one of the fastest ways to get a response (or even a refund), and fleshing out your LinkedIn profile can help you land new clients or a new job. You can also check your Facebook "about" section to make sure you're not revealing details relevant to banking security questions that could make it easier for someone to hack into your account.
14. Improve your credit score.
Giving your credit score a boost can help you land a better interest rate on your mortgage or a new car loan. To improve it, you can start by paying off debt, requesting a credit line increase and always making on-time payments. Late payments and a high debt-to-credit line ratio can hurt your score.
15. Spend less on clothes.
Clothing can be a giant money suck, but there are ways to limit spending without sacrificing your style. Buying slightly off-season gear, swapping gently used clothes with friends and using rental sites like Rent the Runway for formal events can all help reduce costs.
16. Max out your retirement savings.
If you didn't meet your retirement savings goals in 2015, then you'll want to be sure to do so in 2016. If you have access to a 401(k) through work, then you can set it up to automatically deduct a certain percentage from your paycheck. Otherwise, you can check on your eligibility for an IRA account.
17. Prepare your finances for natural (and man-made) disasters.
A bad storm or power outage can leave your financial life in disarray. To prepare for any kind of unexpected disaster, you can come up with a plan for alternate housing, prepare an emergency kit and keep nonperishable food on hand. If you don't have access to heat or running water, you'll want to make sure you can still keep your family fed.
18. Manage household finances better.
Money can get more complicated as your family grows. Using an app like HomeBudget can make it easier to share expenditure information with your spouse. HelloWallet's emergency savings calculator is also useful to see if you have enough savings on hand to get you through a difficult period.
19. Plug money leaks.
Paying more than you need to for transportation, especially if you frequently use Uber or taxis, splurging on name-brand products and going out to dinner are among the common money leaks cited by financial advisors. To plug those holes in your budget, take a close look at what you spent money on over the last month by scrutinizing receipts or your credit card statement, and pick some areas to cut back on.
20. Check up on your insurance policies.
Life insurance is not particularly fun to take out, but it is an essential part of safeguarding your (and your family's) financial security, especially if you are the primary breadwinner. Reviewing your policies once a year to make sure they are in good standing and you have enough coverage is a good idea. You can also check if you have options to take out supplemental coverage through your workplace.
21. Calculate your net worth.
Knowing your net worth is a key step toward building it, so take some time, at least once a year, to crunch some numbers. Run through your current assets and liabilities to figure out your current net worth, and then you can work on building from there.
22. Reflect on your money beliefs.
Sometimes, building your wealth has to start by confronting deep-seated fears and beliefs around money. Perhaps your upbringing led you to believe that you can't enjoy earning money, or you don't deserve to have a big bank account, so you sabotage yourself with actions that ultimately hurt your finances. Exploring those long-held beliefs and massaging them can help you make smarter money decisions.
23. Rebalance your investments regularly.
If you invest too conservatively, then your money might not keep up with inflation. Meanwhile, if you are overly aggressive, swings in the market could lead to a loss of assets at an inconvenient time, like shortly before retirement. Review your portfolio at least once a year to make sure you have the right mix for you; a financial advisor can also help.
24. Take advantage of freebies.
You might be surrounded by free items and not even realize it: Local museums, libraries, public parks and outdoor concerts are often all around, but you might be overlooking them. Taking advantage of those freebies can help cut your entertainment costs.
25. Carpe diem.

As important as it is to save money, it's also important to spend it in ways that bring you joy before it's too late. That's why financial advisors recommend traveling in retirement before health issues make it too challenging and spending as much time with family members as possible.

Culled from US News