Today’s inflation rates are climbing past 8%, the highest they’ve been in 40 years. You’re probably feeling the impact of rising prices more than you have in a long time. They can hit your wallet hard, whether you’re paying for the cheeseburger at your favorite restaurant, the oil change your car needs or clothes for your growing kids. These strategies can help you protect your bottom line.
1. Figure Out How Much Effect Inflation Is Having on You
Your personal inflation rate could be much different than the national rate. If you need to buy a car, you have to feed a large family or you live in a place where you need to use a lot of heat or air conditioning, you may feel the sting more than others. To understand exactly how much inflation is affecting you, compare your spending from the first three months of 2021 to those months in 2022. Learn more about the effects of inflation.
2. Look for Low-Impact Ways to Trim Your Spending
In terms of how to combat inflation, you may need to cut out some of the things you like. Before you take that step, see if you can reduce expenses that you haven’t considered in a while.
For example, maybe you qualify for auto or home insurance discounts. Perhaps there’s a lower-cost internet package that meets your family’s needs. Better planning when you shop for groceries and cooking at home can trim your food budget. Cutting costs in these areas can help ensure that you stay on track with contributions to your retirement accounts. These personal finance basics are a good resource to get your finances on track.
3. Diversify Your Income
When the economy is struggling, your income might not be as stable. If you work for a company, you could find your hours are scaled back, you’re furloughed or you’re laid off. If you’re self-employed, your customers may be spending less. Having additional sources of income can give you some financial cushion to fall back on during hard times.
Depending on the time you have available, your skills and interests and your financial situation, you could look to lots of different places for additional income streams. Maybe you can tutor, walk dogs or help people declutter. You might be interested in driving for a ride-share company or a delivery service. Or perhaps you could rent out an extra bedroom or parking space.
Ideally, you’ll use this extra income to build up your emergency savings so it’s there for you if your primary source of income fluctuates. If you feel your emergency fund is sufficient, you could invest this money in your retirement accounts or in more inflation-proof investments such as money market funds.
4. Stick with Your Investment Plan
When it comes to investment strategies to combat inflation, you probably have your retirement savings and any other investments split between stocks, bonds and cash. If you’re seeing your investments lose value, you may get nervous and be tempted to make changes. If you have a well-balanced portfolio and you’re not close to retirement age, you may want to stick with your plan. That said, falling stock prices could put your plan out of balance, so you may need to reallocate assets to stay on track.
Is Your Financial Plan Inflation-Proof?
Connect with a Farm Bureau financial advisor to review your financial needs and create a strategy for reaching your financial goals.