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Feds Meet Without Increasing Interest Rates + How a Rate Hike Can Effect Your Pocket

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The Federal Reserve concluded its two-day policy meeting without increasing interest rates, although it’s expected the central bankers will lift rates before year-end. Thus far, the Fed has raised interest rates three times this year due to economic growth and inflation. The last increase set the target for the benchmark federal funds rate at 2% to 2.25%. But what does an interest rate hike mean for your pockets? According to MotleyFool.com here are 6 Ways a Fed Rate Hike Can Effect Your Wallet:

1. Get ready for higher rates on savings accounts

As the Federal Reserve increases interest rates, banks may feel compelled to pay a higher interest rate on your savings and checking accounts. Many regional and online banks are now paying close to 2% on cash kept in a savings account, while others are paying 3% or more on five-year certificates of deposit. As interest rates rise, the most competitive banks will increase the interest rates they pay to savers every time the Fed acts.

Of course, whether or not your personal bank will increase your interest rate depends on how hungry it is for deposits. One of the best indicators that a bank may choose to increase the rate it pays for deposits is its loan-to-deposit ratio, which divides its loans outstanding by the deposits its customers entrust with the institution. The higher the ratio, the more likely a bank will have to compete for deposits by increasing rates paid to its customers.

2. Your credit card debt will become more costly

While the Federal Reserve increases rates by increasing the federal funds rate, the increases affect other lending benchmarks, such as the prime rate, too. In the last three years, the prime rate has increased by 1.5 percentage points, while the effective federal funds rate increased by about 1.6 percentage points. The relationship between the prime rate and the effective federal funds rate can be a big deal for credit card users, particularly those who carry a balance.

If you look carefully at the terms and conditions of your credit card, you’ll likely find that the rate charged on your balance is calculated by adding a premium on top of the prime rate. Thus if your card charged an APR equal to Prime plus 10.5%, it would currently carry an APR of 15.25%, based on the current prime rate of 4.75%. That’s roughly in line with the last reported national average of 15.3%. Of course, if you pay your balance in full every month, as you should, the rate you pay on your credit card is irrelevant. Credit cards only charge interest when you carry a balance from month to month.

3. Auto buyers should expect higher APRs

One thing you should know about the Federal funds rate is that it is a super short-term (overnight) interest rate. Thus, when the Federal Reserve votes to increase interest rates, it has the greatest impact on short-term loans such as car loans, which are typically paid off over the course of 48 to 72 months.

Data from the Federal Reserve shows that the finance rate on 60-month auto loans has increased from 4.05% in November 2017 to 4.75% in February 2018, driven in part by the Fed’s decision to raise the benchmark rate. The good news, though, is that many auto manufacturers still offer 0% APRs to buyers with excellent credit. Plus, higher rates have a much smaller impact on affordability for short-term loans like car loans than they do to longer-term loans like mortgages. The difference between paying 4% or 5% interest on a five-year, $30,000 auto loan amounts to only $14 a month, which is a rounding error on a payment in excess of $500 per month.

4. Your insurance premiums could fall

It’s smart to shop around for auto or homeowners insurance frequently to get the lowest premiums, advice that is especially true in a rising-rate environment. Because insurance is prepaid, (premiums are paid before coverage kicks in), insurers are able to invest the money and earn a small amount of interest due to the lag in when they receive cash from customers and when they pay out cash for claims.

The insurance industry is extremely competitive, and insurers price insurance policies partly based on how much they can earn investing the premiums they take in from every contract. When rates are high, insurance companies can afford to charge less for the same coverage, since they anticipate making more money by investing the premiums for short periods of time. Of course, you shouldn’t expect that your car insurer will lower your rate just because interest rates are rising. Shop around, and if you find a lower quote, ask your existing insurer to match the premium, or be prepared to change companies altogether.

5. College financing costs rise

Current undergraduate students will see a higher interest rate on government student loans for the 2018 and 2019 school year. In the upcoming year, interest rates will rise to 5.05%, up from 4.45% during the 2017 to 2018 school year. Luckily, Stafford loans for school carry a fixed interest rate, so the rate increase only affects new borrowings, not existing loans.

Rates for federal student loans are set by Congress. The rate is based on how much it costs the government to borrow money for a 10-year term. Thus, when rates on the 10-year U.S. Treasury note increase, so do rates on government student loans. As the Fed has increased short-term interest rates, investors are demanding a higher rate from longer-term U.S. government notes, and federal student loan rates are rising in response.

6. Your mortgage payment may swell

Homeowners who have variable rate mortgages are likely to see their monthly mortgage payments increase with each increase in the Federal funds rate. That’s because variable rate mortgages are typically based on a short-term interest benchmark, such as the Prime rate or LIBOR. Both the Prime rate and LIBOR increase almost 1-for-1 when the Federal Reserve decides to increase interest rates, affecting anyone who has an adjustable-rate mortgage.

Luckily, people who have a fixed-rate mortgage won’t see their interest rates increase, and new homebuyers may just find that higher overnight rates have little impact on long-term 30-year fixed mortgages. Note that while the Federal funds rate increased by about 1.6 percentage points since the fall of 2015, rates on 30-year mortgages have increased only about 0.7 percentage points. That’s because mortgage rates are influenced more by long-term interest rates and the demand for mortgage-backed securities (packages of mortgages that are sold to investors). Fixed mortgage rates are affected indirectly by Fed policy.

Ash Exantus aka Ash Cash is one of the nation’s top personal finance experts. Dubbed as the Financial Motivator, he uses a culturally responsive approach in teaching financial literacy. He is the Head of Financial Education at BankMobile and Editor-in-Chief at Paradigm Money. The views and opinions expressed are those of Ash Cash and not the views of BankMobile and/or its affiliates.

The Daily Digm (News)

T-Mobile’s Dream of Telecommunications Domination Is Almost Complete + How to Create Mental Toughness While Pursuing Your Dreams

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T-Mobile received verbal approval from the Federal Communications Commission for its $26 billion deal to buy Sprint but still awaits the blessing of the Justice Department. FCC Commissioner Ajit Pai said he’ll back the merger based on concessions by the third- and fourth-largest U.S. telecommunications companies, which include pledges to invest in new wireless broadband service in rural areas and to sell Sprint’s prepaid cellphone brand. While the FCC is expected to make a formal announcement within weeks, the Justice Dept. has yet to weigh out antitrust concerns.

Dream chasing isn’t for the faint at heart. It can take years before one sees the financial payoff of what was once an idea. T-Mobile is probably patient on the outside, but internal it is jumping for joy. It took them a few years to get to this point, but I’m sure they will be relieved at the fruits of their patients.

When building a business, your goal has to be more than money, or you will ultimately fail. Your drive has to be based on principle, change, and something greater than yourself. Here is how to stay mentally tough while pursuing your dreams.

Personal Development. The road to success is paved with character and growth. Personal development is one of the key drivers that sustain you on the path of your dreams. Trustworthiness, keeping your word, and dependability are imperative to any industry. It doesn’t matter if you’re a musician or painter, lawyer or doctor, these traits and non-negotiable and forever transferable to success.

Take Breaks. To get there, you must rest one mile at a time. The grind is overrated. Reflecting on how far you’ve come energizes you for the road ahead. Burnout is a danger to your accomplishments and leads to a failure by default.

Stay Hungry. Stay Foolish. Steve Jobs popularized this quote from an ad in The Whole Earth Catalog. It read Stay Hungry. Stay Foolish. We come to a point when we are happy with a level of progress and think we’ve learned everything. Accepting the truth that we never stop growing, and there is no limit to our success gives us the ability to keep going. To continue, you must never settle. You must always seek new ways of fixing things and solving problems. Discover new opportunities and be open to learning more.

Faith. Steve Jobs also mentioned faith throughout his journey. Believing so deeply in an idea that you make it come to life. Belief takes ideas and materializes them; and when you realize you can actually make something come to life, the sky becomes your launching pad, not the limit.

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The Daily Digm (News)

Retail Wars Are Getting Real Competitive + How to Stay Competitive in the Marketplace

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Walmart has announced plans to offer next-day delivery on about 220,000 of its “most frequently purchased” online items, after rival Amazon promised free one-day delivery for Prime members. The retail giant says the offering, which applies to orders over $35, will reach about 75% of the U.S. by the end of the year. The more limited inventory makes Walmart’s offer more of a competitor to Target’s Restock than Amazon, says TechCrunch. But retailers need to get a better handle on their inventory and demand for fast delivery before making such moves, execs and analysts told The Wall Street Journal.

Competition is fierce no matter what the genre is and as it relates to these entrepreneurial streets, you have to make sure that you are staying ahead of the competition so you won’t get Walmart’d by your Amazon… So what can you do? Luckily, Marketing Donut has come up with Ten ways to keep ahead of the competition:

  1. Know the competition. Find out who your competitors are, what they are offering, and what their unique selling point (USP) is. This will identify the areas you need to compete in, as well as giving you a platform for differentiating yourself.
  2. Know your customers. Customer expectations can change dramatically when economic conditions are unstable. Find out what matters to your customers now – is it lower prices, more flexible or premium service, the latest products? Revise your sales and marketing strategy accordingly.
  3. Differentiate. It’s essential to give your customers good reasons to come to you rather than a rival. Your USP should tap into what customers want, and it should be clear and obvious – no-one should have to ask what makes you different.
  4. Step up your marketing. Improve your market positioning statement. Make more effort to tell people who you are, what you sell, and why they should buy from you. It doesn’t have to be expensive; marketing can range from posters in your window and leaflet drops through to viral campaigns on social media.
  5. Update your image. Simple steps such as painting the front of your premises can make your business look more modern and inviting. But also look at business cards, social media presences, your website, branded packaging, clothing and so on. Does your image reflect your USP?
  6. Look after your existing customers. They will be your competitors’ target market. Provide better customer service by being more responsive to their needs and expectations. If feasible, consider offering low-cost extras such as improved credit terms, discounts or loyalty schemes – remember, it’s cheaper and easier to keep customers than to find new ones.
  7. Target new markets. Selling into a greater number of markets can increase your customer base and spread your risk. Consider whether you can sell online or overseas, for example. Are there groups you’ve never targeted before who might be interested in your offer? Remember the benefits of market segmentation and don’t waste time marketing to people who won’t be interested.
  8. Expand your offer. What related products or services might your customers be interested in? You might even consider diversifying into another area – many bars and restaurants have successfully offered business networking events, for example.
  9. Be the best employer. Skilled, motivated staff underpin vibrant, growing businesses. But attracting them means more than paying a competitive wage – people are often more impressed by a good working atmosphere and benefits such as flexible working and structured career development.
  10. Look to the future. Businesses that plan for growth are more successful than those that are happy to stay still. Keep up with developments in your sector, follow consumer trends, invest in new technology and – crucially – have a clear idea of where you want to be in one, three and five years’ time.
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The Daily Digm (News)

Negotiating Better Pay May Be Getting Easier + How to Easily Stay Ahead of the Game

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Salaries were once a taboo thing to discuss. Yet, with unemployment at a five-decade low and the gig economy requiring people to compare salaries, attitudes are shifting in the conversation, according to The New York Times. Keeping salary information secret favors managers who want to pay people less, say experts. More information about salaries may benefit workers, giving them wider room to negotiate better pay.

This is great news for those who in the past have been cheated out of a fair wage because they didn’t understand how to play the negotiation game. But it doesn’t only take negotiation to get top dollar; there are other tricks to the trade. Here are four ways anyone could use to get ahead of the career game:

  1. Know Your Strengths and Capitalize off of Them. Don’t try to be something you’re not or learn new tricks overnight. Stay in your lane and become stronger. The stronger you become, the more value you will have in the workforce.
  2. It’s Never Too Late to Intern or Volunteer. As adults, these can be such humbling terms, but it can still get your foot in the door. Just look at Chris Gardner. Not only did he become wealthy, but his rise to riches also led to a movie based starring Will Smith & Jayden Smith
  3. Building Your Connections. Who you know is just as if not more important than what you learn. Being authentically connected to others in your field of interest can open up a world of opportunities. One rule of thumb is never settled or compromise for relationships but do, however, seek to build solid ones.
  4. Create Your Own Platform. Don’t underestimate your ability to build an empire. Many successful entrepreneurs and professionals created their own jobs. Combine all of the above and consider investing them in your own enterprise.
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