Everyone has to make a variety of financial decisions each day and many of us make due with limited funds. Do you go out on Thursday for drinks or stay home? Bring lunch or buy it? Take a cab or the subway? This illustrates the good old concept of opportunity cost from Econ 101 where you have to give up something to get something.

Office Supplies

Let's say you need some K-cups and a basket full of goods from CVS. You could just buy them as needed for the full price or embrace the discount philosophy and get a deal.

All retailers have websites and you can sign up for email alerts and discounts. Often, the savings could be from 10 to 30%, plus free shipping and that saves you time.

Retail Therapy

Want to see a show but hate the high cost? Know a student? Student discounts can knock a chunk off the full ticket price. Need shopping therapy? Many retailers offer student discounts, so this may turn into significant savings on large purchases.

Mealtime

Restaurants often offer a deal for lunch. Rather than pay dinner prices, pick up a lunch order and put it in the fridge for later. This can save a good deal of money especially if you are on the run.

Big Purchases

If you are shopping for a major purchase like furniture or a car, be sure to get three quotes and then have the salespeople compete for your business. Don't be shy: you can get a deal and most people will negotiate.

Saving money is like making money, but there is one additional consideration: the tax value. To illustrate, let's say you buy $500 worth of merchandise for $400. On the surface that is $100 in savings. With a NYC sales tax rate of nearly 9%, you save even more due to not having to pay sales tax on the higher amount. If you go a bit further, saving $100 is like making $125 at a job where you have to pay 25% in income tax.

Discounts can make a small impact that can end up being huge. A great tip is to take your monthly savings and put it into the bank. After a year, take a vacation with the money and enjoy the rewards of your diligence.

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The Federal Reserve sets the guardrails for the federal funds rate, and through that helps control the money supply for the nation.

When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.

A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.

One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.

The Federal Reserve The Federal Reserve


The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.

This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.

The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.

Getty Images/Maria Stavreva

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