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The $trategist - Answering Amanda

Q2 2023

Answering Amanda

Granthem Beck, Research Analyst

When Shannon first approached me with the opportunity to write this article, I was immediately excited. Twenty minutes later, this excitement transitioned into anxiety as I wracked my brain trying to come up with a topic that would be timely, helpful, and hopefully interesting! I ended up spending days debating various ideas and, in the end, it wasn’t even me who came up with this idea. That credit has to be given to my lovely wife, Amanda.

We were getting ready to start the day. I had the news on in the background and they were talking about inflation and the Federal Reserve raising interest rates. Amanda asked, “What does raising interest rates mean and how does it help control inflation?” I took a big sip of my morning coffee, gave her a kiss, and promptly left for work saying I was not awake enough to cover that. Later that morning, I realized her question was the perfect topic for this article! So, here is my best attempt at clarifying the relationship between the federal funds rate and inflation.

One of the tools that the Federal Reserve uses to combat inflation is the federal funds rate. In short, this is a target interest rate range at which banks borrow and lend their excess reserves to each other overnight. By law, banks are required to maintain a cash reserve, equal to a certain percentage of total deposits, in an account at a federal reserve bank to ensure they have enough cash to cover withdrawals by their depositors and other obligations.

When a bank calculates that it will be short on cash in this account overnight, it is able to borrow money from banks that have a higher reserve than required. By raising the interest rate for this lending and borrowing, which is then passed on to the consumer, the Federal Reserve increases the cost of borrowing money. This discourages consumer and business spending/borrowing and lowers the quantity of money in the economy. This lower demand for goods and services, decreased spending, and lowered money supply helps to reduce inflation over time.

Now you see why I needed to finish my morning coffee before launching into this explanation. And Amanda, while this explanation might not cover the entire topic, hopefully, it helps to explain the relationship between the two and why both have been such a major topic of conversation over the last year.

Planning Notes

June Schroeder, R.N. CFP

Converting to Solar?

It takes an average of 8.7 years to break even counting from end of installation until your energy is free. Startup costs are about $20k after tax incentives, but you also need a battery costing about $9k.

Shred Tips

Here’s a list of a few things many people don’t shred and should: Boarding passes, prescriptions labels, store receipts, pet medical papers, return address labels. Each of these has some kind of information that can be used for a nefarious purpose.

Car Loans Get Longer

This past decade, car loans have grown from an average of 3 years to over 7 years, which is longer than many people even keep their cars! The average loan is now over $32k. Often the balance is then rolled into the next loan, keeping the car owner always in debt. Consider buying a used car or setting up a car fund so you can save up to pay cash.

Auto Insurance Rates Get Higher

Bankrate.com reports that auto coverage rose 17% since 2022 while inflation was only 4%. Average premium is now $2k, fueled by increases in prices of cars, repairs, and medical coverage. Tips: shop around, consider a higher deductible, drop unneeded coverage, or get a discount by installing a driving monitoring device.

Payment App Warning

Many consumers use payment apps that allow balances to accumulate. Beware: these have become a big lure to hackers and balances may not be insured by the FDIC.

Retreat Recap

Shannon Nook, FPQP

You may recall that recently our founding partners, June and Tom, staffed our brick-and-mortar office, while the rest of the team spent three days at our first ever offsite retreat.

The retreat strategic planning process began with the legacy core values upon which June and Tom founded the business, and which continue to be our mission: Delivering quality personalized financial peace of mind with integrity, knowledge, and common sense to our clients. The retreat also allowed the Liberty team to develop stronger interpersonal relationships and expand how we work best together by fostering our unique individual talents as a team providing multigenerational financial life planning.

As we continue this legacy, we see the critical interest in our services from pre-retirees ages 40-55, especially those working in the healthcare and education fields. It’s the age range when many of June and Tom’s clients, often nurses and teachers, began planning over the past 42 years. Those individuals and families now see the results. Delegation to, and trust in, our Liberty team’s personalized retirement design has enabled clients to enjoy the journey of life with peace of mind while achieving their own unique financial vision along the way.

We offer educational workshops. If you have connections to groups in healthcare or education, or know someone who might benefit from peace of mind in securing their financial future, please share our contact information.  Ask them to take a moment to connect to the Liberty team for a free initial consultation or a group financial planning presentation:

Please know that we appreciate continuing to foster our amazing relationships with each of you, and we would not be complete without your support and confidence. Thank you!