July 25, 2024

INFLATION INSULATION

How to Protect Your Finances from Rising Inflation 

 In recent years, the inflation rates for the United States have significantly increased. The inflation rate in January 2022 skyrocketed to a staggering 7.5%, marking the highest inflation rate in four decades. 

What Causes Inflation?   

Inflation is the general increase in the price of goods and services over time. There is a close relationship between monetary policies and inflation. The Federal Reserve’s monetary policy, which includes keeping interest rates low, has played a significant role in contributing to the current high inflation rate. According to Standford University, the Federal Reserve has kept interest rates significantly low in the past, with the federal fund rate currently at 2.33%. This is a much lower rate than in previous years and is even lower than the current inflation rate, which is hovering around 7 or 8%. This large gap between interest and inflation rates is reminiscent of the 1970s when inflation began to rise. 

Why Is It Important to Stay Informed?  

Staying informed about inflation can help individuals anticipate future changes and make adjustments accordingly, ultimately allowing them to better manage their finances and make the most of their resources. Inflation affects the purchasing power of money, which means that as prices rise, the value of money decreases. This can lead to an increase in the cost of living, reducing the standard of living for individuals and families. Inflation can also influence interest rates, which can impact borrowing and investment decisions. Knowing the current inflation rate can help individuals and businesses make informed decisions about their spending and saving habits, as well as their investment strategies.  

How Can You Stay Prepared for Rising Inflation?  

 Diversify Investments 

Safeguard your finances against inflation by investing your money. Invest in assets that have the potential to increase in value over time. These can include stocks, real estate, and even commodities such as gold and silver. While it is important to diversify your portfolio, investing in assets that are difficult to replicate and have the potential to increase in value can also help to protect your wealth. This strategy not only helps to offset the impact of inflation, but also allows you to grow your wealth over time. 

During times of increased inflation, the best places to put your money are in Treasury Inflation-Protected Securities, cash, short-term bonds, stocks, and real estate, according to financial experts with CNBC Select. By investing your money profitably, you can achieve real protection against inflation while simultaneously increasing your capital. 

 Save Money 

Keep your expenses in check and live within your means. This can help you to save more money and build your wealth, which can provide a financial cushion in the event of rising inflation. It is generally recommended to have at least three to six months’ worth of living expenses saved in an emergency fund to help you weather any financial storms that may come your way. This can also be helpful in the event of rising inflation, as it can give you the financial cushion you need.  

Inflation in the U.S. has reached unprecedented levels, causing many Americans to feel uncertain about their emergency savings. Over the past two years, the amount of people concerned about their savings has increased by 14%, according to a recent survey from Bankrate.com. This further highlights that the best way to mitigate unforeseen costs or chaos is to have enough savings set aside to ensure you will stay afloat. 

 Avoid Debt  

Eliminating and avoiding debt is a crucial aspect of an effective inflation preparation strategy. Paying off credit card balances, student loans, and other debt obligations, although it may require making some financial compromises, can yield long-term savings. With inflation, interest rates tend to increase, causing debt to accumulate and grow at an accelerated pace. By paying off debt promptly, you regain financial independence and flexibility. If you are seeking assistance in finding ways to save and pay off debt, reaching out to a financial advisor can be a valuable step towards your financial goals. 

 Preparation Starts Today 

Staying prepared for rising inflation requires a combination of saving, investing, staying informed, and living within your means. By taking these steps, you can protect your financial well-being and weather any financial storms that may come your way.