FPG Corner: Tips for Keeping Up with High Inflation

Typically, inflation is around 2%-3%. Lately it has been hovering above 8%, which is something we have not seen in around 40 years. 

While we all hope the rise of inflation will be temporary, it is important to prepare our finances in case there is sustained increasing inflation over a longer period. 

Spend less, if possible. This may seem obvious, but here are a few things you might not have considered: 

Negotiate lower prices on everyday expenses. Some expenses are set in stone, but there are things such as streaming services, insurance, cable, and gym memberships that can be negotiated. Call your providers and ask for any specials or deals that you qualify for. There is no harm in asking, and studies show that consumers who call and ask for lower rates are almost always successful. This is also a good time to evaluate any subscriptions you have that are absolutely necessary, and which ones you can cut out. You can always sign back up later!

Consider holding off on bigger purchases. Certain price hikes could be temporary. Do your research on what is causing the price of the consumer good you wish to purchase to increase to make an educated decision on whether you think it is temporary or not. For example, a shortage of semiconductor chips has decreased the inventory of new cars, which has put a strain on the used car inventory as well. If you can hold off on a car purchase until the supply of those parts increases, you could save significant money! 

Another thing to note is that inflation is not affecting everything equally. Try and keep up with inflation reports and follow what is being affected the most and avoid or reduce expenses in that area if possible.

Consider paying off variable rate debt. When inflation is high, interest rates typically increase to control the economy. Things like credit cards, lines of credit, personal loans, and variable rate mortgages could have a high spike in interest rates that could be a large cost to individuals. Review all loan contracts and make sure you are not affected by a rate increase. If you are, consider using any extra cashflow to pay down this debt. 

Invest your money. To maintain purchasing power over the longer term, your portfolio needs to increase more than inflation. Cash at the bank makes close to no interest, therefore it is losing purchasing power. Consider having a diversified portfolio that includes investments that will go up with inflation such as Series I savings bonds and TIPS. Some other options to consider are commodities, securities, and equities. Determine the right investments for you based on your beliefs, income, expenses, risk tolerance and time horizon.