In a bid to reduce the crazy inflation we are all witnessing, the Bank of England, and the Federal Reserve in the USA, have both continued to keep increasing interest rates. In basic terms, increasing interest rates makes borrowing money more expensive and therefore consumer spending (we are the consumers) goes down. One of the reasons why inflation is so high right now and why prices are rising so fast, is that there was a lot of new money printed during the pandemic, making people “richer” in terms of numbers. However, the number of actual things to buy hasn’t increased, so the demand is so high but there are more dollars to throw at the problem, making inflation extremely high.
This increase in interest rate isn’t great new for everybody. Mortgage rates are the highest they have been in decades, meaning that fewer people can afford new homes. The stock market is also not reacting well because investors can’t leverage cheap debt to make profit. More importantly, the recession is leading to an economic decline, which basically means that there will be fewer jobs in the near future, more company layoff and just everything looking a bit bleak. One thing that could help in such times is to reduce your spending and live as below your means as possible, its important to save for an emergency fund of out 3-6 months’ worth of wages so that you are protected. One other way that you can come out of the recession a wealthier person is by investing in low-cost tracker funds, currently they on sale because they are at a lower price than usual. But never invest money that you need in the near future and remember that your capital is always at risk! Be sure to check out my video on how you can invest in ETFs.
Anyway, next week is another week and another newsletter, keep posted for more snippets.
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