While it’s a problem that has been around for centuries, there are ways to counter inflation. It can be difficult to fight against, but with the right tools and strategies, you can overcome it. In this blog post, we will discuss nine ways that you can counter inflation and protect your hard-earned money. Keep reading to learn more!
What Is Inflation and How Does It Affect Your Money?
Inflation is the sustained increase in the prices of goods and services. This means that, over time, your money will buy less and less. Inflation can be caused by a variety of factors, including economic growth, supply and demand imbalances, and central bank policies.
People experience inflation at the gas pump, at the grocery store, and when they pay their utility bills.
Inflation is often described as a “hidden tax” because it erodes the purchasing power of your money. For a lot of people, inflation is confusing especially since we haven’t had a lot of it in the last 30 years.
The History of Inflation
In 1921, the U.S. Bureau of Labor Statistics (BLS) began publishing a national consumer price index (CPI), including estimates of the CPI back to 1913. This uses real information about what families spent money on (and how much they spent) across different geographies in the United States. Today, the data focuses on urban consumers.
In the United States, inflation has averaged about 2.36% per year from 2000 to 2020. Pretty close to the Federal Reserve target of 2%.
However, there have been high inflation spikes in the past. After World War II, when price controls were removed, the G.I.s came home and increased consumer demand, spiking prices up over 20%. The Korean war sent inflation to nearly 10%. And the Oil shocks of the ’70s sent prices up nearly 15% in two major spikes.
Today, many people are experiencing high inflation for the first time.
How Can You Protect Your Money From Inflation?
There are a few things that you can do to help protect your money from inflation.
- Real estate is a great hedge against inflation. When prices go up, the value of real estate usually goes up as well. This is because people still need a place to live, and they will pay more for housing when the cost of other goods and services rises.
- Invest in assets that will increase in value as inflation rises. This includes things like stocks, real estate, and precious metals.
- Another way to protect against inflation is to ensure your income is protected if you currently depend on it, through disability insurance. This is especially true for single-income households.
- You can also hedge against inflation by investing in Treasury Inflation-Protected Securities (TIPS). These are bonds issued by the government that provide you with protection against inflation. Series I bonds allow investors to ride inflation. These bonds are marked to inflation, and issued by the U.S. government. They provide investors with a stream of income that increases along with inflation. They can be purchased through Treasury Direct and have some penalties if you sell them early.
Ways To Counter Inflation Strategically
Inflation can be a scary thing, but there are ways that you can protect your money from it.
First, try to reduce the variable interest rate debt that you have. This is not the time to pay down low fixed interest rate mortgages. Instead, focus on reducing the balance of any credit card debt or adjustable-rate loans that you have.
Second, reduce spending on high inflation items. Gas, for instance, is up 40% in 2022. Similarly, home furnishings and appliances are up over 10%. Rethinking how you spend on high-impact items can help reduce the overall impact of inflation on your budget.
Third, don’t forget to include and possibly increase inflation in your financial planning. When you are estimating how much money you will need in retirement, be sure to use an inflation-adjusted number, and review that number annually.
Finally, try to stay informed about what is happening with inflation. This will help you make the best decisions for your money.
Inflation can rattle even the most steely investor, but there are ways that you can protect your money. A time of high inflation is a time to be conservative and watchful.
Claire Hunsaker, ChFC®, is a Chartered Financial Consultant featured in American Express, Forbes, Parents, Real Simple, and Insider. She offers free financial planning for single women through AskFlossie, where she is CEO. Claire holds an MBA from Stanford and is an IRS-certified Tax Preparer. She has 20 years of business and leadership experience and approaches money topics with real talk and real humor.