The Nourished Just Minimize Interest Levels - Once more. Heres Why You Need To Save More.

Despite a low unemployment rate, rising wages, record stock market highs, and healthy amounts of consumer spending the Federal Reserve just cut its benchmark interest rate for the third time this year to a range between 1.5% and 1.75%.

The Fed has cut rates by a total of 0.75% this year, in part because it has been spooked by the ongoing China/US trade dispute, lackluster global growth, and prices rising lower than expected. This has almost totally reversed the four Fed rate increases of 2018.

Admittedly, monetary policy can get wonky fast, and your eyes may glaze over while your friends explain how the rate cut caused their bank to lower how much interest they earn on a savings account, or whether now is a good time to buy a house. (That second link is to The New York Times, Wirecutter’s parent company.) But rather than getting lost in monetary-policy minutiae, try focusing on your big picture.

Why you should save more after the Fed cuts rates

The time to right-size your personal finances is when things are going well.

You want to be in as good a position as possible should the economy slip into a recession and your personal finances become more precarious. Putting away six months’ worth of essential expenses in a savings account, and aggressively working down high-interest credit card debt, are two moves within your power to affect.

Ideally, today’s news should spur you to increase how much you have stowed away in a liquid savings account—even if your savings account may earn less interest after the rate cut—or to pay down your high-interest credit card debt.

If you don’t have a dedicated savings account and you need help clarifying your financial picture, consider our pick for the best budgeting app or tool: You Need A Budget. You’ll be able to see where you can scale back spending, and start putting more money in the bank. If you’re turned off by the idea of a subscription fee for a budgeting tool, you can find many free budget spreadsheet templates that can get you started.

Of course, simply switching over to becoming a better saver is tricky. About two-thirds of all active credit cards are used to revolve a debt (also known as carrying a balance), according to the Consumer Financial Protection Bureau (PDF), while 27% of American households would have to borrow or sell something to pay for an unexpected $400 expense. Another 12% simply wouldn’t be able to cover that expense at all.

Use You Need A Budget—or whatever budgeting tool you like—to find a savings pace that works for you. What’s key is that you make a conscientious effort to find ways to save.

Fed rate changes may trigger the desire to make big changes elsewhere—but you should resist the urge to take on more risk in the stock market, for instance, or to refinance your house simply because the Fed cut interest rates. Those may be worthy strategies, but not because of the Fed’s moves today.

Use the news to take action, not as a crystal ball

Just because the Fed cut interest rates today doesn’t mean a recession is coming. The situation is not necessarily in Chicken Little territory, according to CFRA (an investment research company) chief investment analyst Sam Stovall, who notes in a research report that the current economic expansion “may not run out of steam anytime soon.”

That would be wonderful news. But financial professionals can get things horribly wrong, and no one can predict exactly if or when a recession will happen. Should that occur soon, make sure you’re well fortified against financial trouble by saving more today.

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