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All over the news, headlines read that the Federal Reserve rates are at an all-time low recently, but what does it mean for you? 

Understanding fed rates and how they impact banking, borrowing, and saving can help you plan your finances. 

What is the Federal Reserve?

Congress created the Federal Reserve System in 1913 to be a central bank for the United States in response to financial crises of the early 20th century. The Federal Reserve—the Fed for short—is made up of 12 banks, each responsible for a regional division of the country. 

The board of governors and Federal Open Market Committee make decisions for the Fed. 

The responsibilities of the Federal Reserve are to:

What is the fed funds rate?

The Fed has a rule that banks must keep enough cash on hand to open for business every day. 

This rule means banks can run steadily and don’t hand out every dollar in their vault. 

If a bank is low on cash, they can borrow from another bank. 

When a bank lends money to another bank, the borrower is charged the fed funds rate for the loan.

Why does the fed rate exist?

The fed rate plays into how federal funds are used to control the nation’s interest rates. By requiring banks to have cash on hand, the Fed ensures that customers can always get money from their banks. 

The goal is to keep inflation low and to do that, the Fed raises the fed funds rate. 

Inflation means the dollar is worth less.If inflation rises unexpectedly, basic needs (housing, food, utilities) suddenly become more expensive, and the economy suffers. 

Keeping the inflation rate low and stable means people can reliably buy what they need to and the economy stays healthy.

What does this mean for me, as a consumer?

The fed rate sets the bar for credit rates.

The borrow rates you get on your credit cards, mortgages, and other loans are based off of the fed rate.

This means that the interest you repay the bank for your car loan, credit card payments, and home mortgage is all affected by the fed rate.

What’s a low fed rate? What’s high?

In times of crisis, like during the COVID-19 pandemic, the Federal Reserve lowers the target for the federal funds rate. 

Money is freed up and easier to borrow when Americans have less to spend. 

As of late June 2020, the Federal Reserve’s fed funds rate is 0.25% (up from nearly 0% earlier in the pandemic). The last time the fed rate was this low was during the 2008 financial crisis, and the Great Depression in the 1930s before that.

Does this affect financial products?

Changes to the fed fund rate have downstream effects on financial products like high-yield savings accounts

While the Fed rate is complicated, the effects most people will notice are pretty simple. Lower fed rates mean that banks set lower interest rates, which means if you’re saving money you’ll probably make less on interest. But, if you’re looking to borrow money, you’ll probably be paying a lower interest rate.

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).

You say you want to save money and get out of debt. Yet you find yourself buying yet another thing you probably don’t need. We get it—buying new things is fun, whether it’s an awesome new shirt to wear for the weekend or a new electronic gadget.

And while a lot of money advice usually offers very generic mantras like “Spend less than you earn”—we believe there’s something different to think about too. Yes, the dollars you spend are important, but it’s also how you’re spending them.

So if you’re struggling to get right with your money plan, it pays to take a look at your core money values.

Once you determine whether your purchases truly connect with the things that you care about, you can make decisions about the most effective way to use your money. And that may very well be the first step to getting out of debt and saving more money.

Identify your core values

You may already have a keen sense of your core values, but many people haven’t taken the time to reflect or even articulate on what matters most to them. Or, it may have been some time since you thought about this and your values could have changed over the years.

Pinpointing core values can be surprisingly tough, and there are a variety of activities that could help. If you’re looking for guidance, maybe it’s time to talk to a life coach try a short meditation retreat to get some clarity. There are also DIY approaches that you can start with at home.

Kevin Daum, a serial entrepreneur and author, shared his personal values in a column on Inc. and has a simple exercise you can try. It involves writing down detailed accounts of your greatest accomplishments and failures, as well as times when you’ve been most and least efficient, and looking for themes.

The goal is to come up with a handful of words or short phrases that are your guiding principles. These aren’t just for financial decisions. Your values should also be reflected in the way you choose to live your life and the goals you set for yourself in the future.

Compare Your Spending with Your Values

Once you’ve identified your values, gather data on your past purchases. You can pull the information from a budgeting app if you use one, or get copies of past bank and credit card statements.

Having each expense on its own line can be helpful, as you go item-by-item and ask yourself, “Does this align with one of my values?” Try to answer with a yes or no rather than maybe or kind of, and write down the value it aligns with when there is one.

Sometimes there’s an indirect relationship between a purchase and a value. For example, paying for gas may allow you to get to work, which gives you income to support your family and community. If you’re stretching too hard to make something “fit” one of your values, perhaps it doesn’t. When that’s the case, you may want to reconsider making similar purchases in the future.

An even shorter version of this exercise involves simply looking at the last five things you bought on your debit card. What do these purchases say about you?

Find less expensive alternatives

The exercise can help you identify where and when you’re living your values. You can use this information to redo your budget, perhaps even your lifestyle, to better reflect how you ideally want to live. You can look for ways to cut out expenses that don’t fit. And even with purchases that you feel align with your values, you could look for options fulfill the same want or need but costs less.

For example, you may meet a friend for dinner and drinks once a week and value building friendships as one of your core values. You may even both be foodies, and love trying out new dishes. However, if you agreed to cook together at one of your houses, you could save money, learn new skills, and still get to spend time together.

Automate parts of the process

It may take a bit of legwork to identify your core values and integrate a mindful approach to spending money. But once you’ve got a system in place, you can look for some opportunities to automate processes. Budgeting apps that pull in and organize data can make going through your purchases easier.

You may also be able to sign up for SMS Alerts that can inform you when you’ve spent a lot of money in a specific category, such as eating out or ride sharing. The reminders can be a simple nudge that helps you reevaluate your actions. And over time, you may find that your money habits change to better align with your values.

Links to external websites are not managed by Varo or The Bancorp Bank.

Louis DeNicola is a freelance personal finance writer and credit enthusiast. You can find him on Twitter @is_lou

Bank Account Services provided by The Bancorp Bank; Member FDIC.

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).

While you might feel that 2017 cannot end quickly enough, it’s important to take time to set yourself up for financial success before ringing in the new year. You may be planning on making a few money-focused resolutions this year, or you might simply want to tidy up your finances. Either way, the following can help you make the most of the money you have, and save you time and energy during the coming year.

Take Time to Review Your Finances

At least once a year, take time to review your finances and figure out where your money is going. You may be surprised to find that savings opportunities are staring right at you. Plus, you can use the information to start the new year from a place of certainty.

Focus on Saving in the Next Year

The new year is often a time of self-reflection and goal setting. Perhaps there’s a new skill you’ve been meaning to learn, a practice or habit you want to incorporate into your daily routine, or a trip you’d love to take. Putting part of your financial life on auto-pilot could help you achieve a wide variety of goals.

Starting with an emergency fund, savings that can cover at least three months of expenses, can be important. From there, find the right savings account, set goals, and automatically transfer money into them each month. The low-touch approach lets you focus on living your life while the savings accumulate in the background. And when it’s time to sign up for a class or book a flight, your savings will be there to help you out.  

Consider End-of-Year Tax Moves

Although you may not need to file a tax return until April, you may be able to take actions not that will affect how much you have to pay, or how much you get back, when you file.

Read Over Your Credit Reports

If you already regularly check your credit, you can skip this one. But especially considering the recent Equifax hack, you may want to review our credit reports for suspicious activity. If you see an account that you don’t remember opening, that could be a sign of identity theft.

Keep in mind that sometimes the name on your credit report could be the bank that your lender used to finance your account, which might have a different name. As a result, it may be difficult to recognize the account, but it could still legitimately be yours.

Bottom Line

Whether or not you set New Year’s resolutions, the end of a calendar year is a great opportunity to think about your personal and financial goals. Set yourself up for success in the coming year by reviewing your finances, looking for savings opportunities, and getting organized.