While many retired clergy choose to enjoy their well-deserved season of rest, some seek ways to continue nurturing their spiritual calling.
The Federal Reserve has increased short-term interest rates to combat this inflation, which in turn, has increased interest rates on mortgages, credit cards, loans and more. The Fed plans more rate hikes throughout 2023. The goal is to shrink inflation back down to normal levels, but there might be some short-term pain before the American economy achieves long-term financial gain. As we wait for an economic recovery, see the bulleted list below of some considerations for ministers and church leaders when interest rates climb.
First, we’ll look at the downside of rising interest rates to keep in mind.
Contrary to widespread belief, there are also upsides to rising rates. The pros include:
What you can do to weather this season
To start an action plan, review your financial strategy and interest rate risk with your financial planner. Next, assess your interest rates for both deposits and debts to determine what you are earning on your investments. Ask yourself and your financial planner if you should shift your funds to a higher-earning deposit account.
Review your debts and understand which accounts are variable and which are fixed. If you have variable-rate debts or loans, consider whether you should shift to a lower-rate account or fixed-rate products. Review and adjust your budget by cutting down on non-essential expenses. Try to minimize taking on new high-interest debt and prioritize paying off existing high-interest debt to reduce your financial burden. As interest rates continue to climb, your debts will become more expensive to service.
Build up an emergency fund. Having a cushion of cash on hand can help you manage short-term financial challenges, such as unexpected expenses or job loss. It might also reduce the likelihood of having to access investments adversely affected by market performance.
Diversify your investment portfolio. Consider investing in a mix of stocks, bonds, real estate and other assets to reduce the impact of rising interest rates on your portfolio. Don’t rush to sell your fixed-income holdings just because rates are rising. Fixed-income investments are a balancing factor to equity investments and are part of a diversified portfolio and asset allocation that serves you for the long-term. If the economy falters and rates fall, your bond portfolio could increase in value. This strategy takes into account your individual needs and increases the chance that you will be able to withstand economic cycles.
It’s important to note that interest rate changes can have a big impact on your finances and it’s wise to have a solid plan in place; however, the best approach might vary depending on your specific financial situation and goals. Consult with a financial planner before making any major changes to your financial plan.
Finally, remember that what goes up must come down. Sooner or later, both interest rates and the inflation which the rate hikes are meant to tame will return to more normal levels. It’s a matter of positioning yourself to weather this rough patch in the economy and take advantage of the silver linings in the meantime.
*This represents the most recent data as of February 2023.
1. CNBC Making It, September 23, 2022, “Historic rate hikes mark the largest 6-month increase in 41 years: What you should do with your money,” by Ryan Ermey.
Louis P. Barbarin, CPA, is Chief Executive Officer of MMBB Financial Services
[ www.mmbb.org ]. Barbarin holds a Bachelor of Science in Accounting, a Master’s in Finance from Penn State, and has completed the Harvard Business School Advanced Management Program. He is licensed as a certified public accountant in the states of New York and Pennsylvania.
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