Higher essential goods’ prices can significantly impact our purchasing power and quality of life. Therefore, it’s crucial to stay informed on the Consumer Price Index (CPI) and other measures of inflation. The CPI measures the price change for a basket of goods and services over time, indicating how rising costs affect our lives.

What is inflation?

Inflation is a rise in prices, translated as the decline of purchasing power over time. The rate at which purchasing power drops can be reflected in the average price increase of a basket of consumer goods over some time. The rise in prices, often expressed as a percentage, means that a unit of currency effectively buys less than it did in prior periods. In simpler terms, high inflation means higher prices of essential goods and services.

How can rising prices impact my life?

Rising prices of everyday goods and services can profoundly affect your quality of life. For example, if the cost of groceries increases significantly, it could be challenging to balance your budget or achieve financial goals without reducing the amount you spend in other areas. This is why staying on top of rising inflation rates is essential.

How can I protect myself from inflation?

Periods of high inflation are unpredictable, and there needs to be more information on the inflation rate and its duration. More up to date information might be helpful for you to avoid inflation’s worst impact. It is possible that comparing your budget with the future budget may cause some changes in how you invest. If you want to protect yourself from inflation, here are some tips:

Invest in income-producing assets

Investing in money market accounts such as stocks, bonds, or mutual funds can help you beat inflation.

Treasury inflation-protected securities (TIPS) are designed to protect the value of your money against inflation. TIPS pay you a fixed interest rate, but the principal is adjusted according to changes in the CPI. So, investing in TIPS helps you combat inflation.

High dividend-paying stocks are affected by rising inflation in the same way long-term bonds are. So when investing in the stock market, make sure to look closely at high dividend-paying stocks to invest in!

Investing in tangible assets like real estate properties is another great way to hedge against rising inflation. This is because real estate prices tend to increase over time, and when inflation rises, real estate value usually follows.

In addition to buying physical property, investors may consider investing in REITs (Real Estate Investment Trusts). These companies own and manage a portfolio of income-producing real estate assets such as office buildings, apartment complexes, shopping centers, or warehouses. By investing in REITs, investors can diversify their portfolios and benefit from the income generated by these assets.

Bond funds can also be an excellent way to protect against inflation. They typically invest in various fixed-income securities, such as government bonds and corporate debt. Since the interest payments from these investments are usually higher than what you would earn on cash deposits, investing in short-term or long-term bonds when inflation rises can help offset some of the losses that come with it.

Develop a budget

Creating a budget and tracking your spending can help you stay on top of rising prices. When necessities begin to cost more, discretionary spending should be reevaluated to avoid neglecting the necessary expenses. 

Reduce rates on other debts

You can also budget for your credit card repayments or other loan types, as well as your mortgage. Paying off debt can be helpful when price increases occur. If you have credit cards, it’s possible to use credit cards with low-interest rates and get loans with a low fixed rate. A zero balance transfer gives you time to pay off your owed balance without penalty. Personal loans with lower monthly interest rates can also consolidate your credit card debts with higher interest rates.

Increase your income if possible

Inflation and high prices cause incomes to decrease. Although the Great Resignation of 2020 has led many businesses to increase salaries, American wages have been relatively stable for many decades. Having an income boost will improve your current financial situation, especially if you are struggling with price stability.

Make room in your budget for Investing

In certain circumstances, inflationary periods may appear like the wrong time for many investments. But several asset classes perform well in inflationary environments. A certified financial planner will often suggest investing in the stock market and buying value stocks.

Stay informed on the CPI

Staying informed about the Consumer Price Index (CPI) is essential for keeping track of rising prices. The CPI measures the change in prices for a basket of goods and services over time, indicating how rising prices affect our lives. By monitoring these changes, you can make informed decisions about your spending habits and budget to ensure that rising prices do not significantly impact your quality of life.

Keep an eye on rising interest rates

Interest rates can also have a significant impact on the inflation rate. By keeping track of changes in the rate, you can avoid being hit with higher costs when borrowing or investing. Additionally, rising interest rates can lead to increased demand for certain products and services, which could raise prices.

Save on car insurance

As mentioned earlier, a homeowner’s policy can be changed to avoid higher inflation or costs. You can also change different variables within your car insurance. You could consider reducing your coverage, increasing your deductible or find ways to bundle policies.

Shop smarter at grocery stores

Feeding our families shouldn’t be an option. But when prices rise, even providing for the living expenses of the entire family can be difficult! So shop smarter at grocery stores. Avoid unnecessary purchases and bring enough cash when grocery shopping to avoid getting tempted to overspend!

Eliminate unnecessary subscriptions and fees

Subscriptions to things such as streaming services can stack up fast. The average family spends about $55.25 per month on streaming services. This may not seem like much, but $55 a month is equivalent to over $600 a year. So, avoiding unused subscriptions may make sense if you want to cut costs.

Streamline your mortgage costs

It can also be beneficial to streamline your mortgage costs by refinancing. This can reduce the interest you have to pay and provide more cash on hand for an emergency fund. Additionally, consider looking into loan consolidation if you have multiple loans so that rising monthly payments are easier to manage.

You need cash for emergencies & short-term goals

Younger investors who want money can use cash as an emergency reserve to cover unforeseen bills and the loss of a job. Usually, you have a savings account with the three-months worth of money. It might be an overwhelming amount. But remember that it’s the money you will use if you lose a job and need cash.

Complete an energy audit

Energy prices significantly drive inflation. When the prices of natural gas increase, transportation and energy costs increase too. Consider completing an energy audit. This will help you identify areas where you can reduce your energy consumption, which could decrease your overall living expenses. Additionally, look for ways to invest in energy-efficient technologies that can save you money. In the long run, this may help mitigate the increasing cost and ensure financial stability.

Why should inflation be considered?

Inflation has many frightening effects; the largest arguably being the diminishment of purchasing power. Inflations mean the dollar can buy fewer goods or services as prices rise. Despite low inflation in recent months, long-term investors and retirees are still cautious about the threat of inflation. Increasing inflation could pose an essential threat to retirement if the risk is not properly assessed.

Therefore, it is always wise to prepare a portfolio of investments with real value or increase your net worth. Then, whether inflation rises or not, you feel secure by having investments waiting to provide a passive income stream while keeping pace with inflation. However, if inflation does not increase, it also does not hurt to have extra cash for financial freedom.

Where to learn about investments?

There are many companies that provide training about investments, or you can contact a certified financial planner to help you. Remember to study every investment you put your money into because there is no risk-free investment with high returns. Every investment has its share of risks, and you should only shell out your cash based on your risk tolerance.

The Wealth Map is a great option to start learning about investments that can help you combat inflation. In addition, it has an investing course, Investing 101, that you can enroll in and learn about private equity investments and how to leverage yourself in times of uncertainty.

Although savings accounts are what we traditionally think is the best way to help with inflation rates, they are the opposite! So invest in yourself and your learnings, and take the time to learn about index funds, inflation, and individual stocks through The Wealth Map! See you there!