5 Ways to Handle Inflation
Updated: 1 day ago
5 Ways to Handle Inflation Inflation is the general increase in the prices of goods and services over time. It reduces the purchasing power of money and erodes the value of savings. The current inflation rate in the US is 4.9% for the 12 months ended April 2023, which is the lowest since April 2021 but still much above the 2.1% average reported from 2000 to 2020. Inflation is causing economic instability for many Americans, especially those on fixed incomes or low wages. Here are some ways to cope with inflation and protect your finances.
1. Adjust your budget The first step to dealing with inflation is to review your income and expenses and see where you can cut costs or increase income. You should prioritize your needs over your wants and reduce discretionary spending on things like eating out, entertainment, travel, or clothing. Look for ways to boost your income, such as taking on a side hustle, asking for a raise, or selling some unwanted items. You could reduce cell phone expenses by checking if you are eligible for a free phone.
2. Save more and invest wisely Inflation can eat away at your savings if you keep them in low-interest accounts or under your mattress. To preserve your purchasing power, you must save more and invest in assets that generate higher returns than inflation. For example, you can consider putting some money in a high-yield savings account, a certificate of deposit (CD), a money market fund, or a Treasury inflation-protected security (TIPS). You can also diversify your portfolio with stocks, bonds, real estate, commodities, or cryptocurrencies that can appreciate over time.
3. Pay off high-interest debt Inflation can make your debt more expensive if you have variable interest rates on your loans or credit cards. Pay off your high-interest debt as soon as possible to avoid paying more interest than necessary. You can use strategies such as the debt snowball or the debt avalanche to tackle your debt systematically. You can also look for ways to lower your interest rates, such as refinancing your mortgage, consolidating your debt, or transferring your balance to a lower-rate card.
4. Shop smartly
Inflation can make everyday purchases more costly if you don’t shop smartly. To save money on groceries, gas, utilities, and other essentials, compare prices, use coupons, buy in bulk, shop online, or switch to generic brands. You should also plan and buy things when they are on sale or in the season rather than when you need them urgently. You can also use apps or websites to help you find the best deals or cashback offers.
5. Seek professional advice Inflation can be complex and unpredictable, and it may affect different people differently depending on their income level, spending habits, lifestyle choices, and financial goals. If you are unsure how to handle inflation or need help with your financial planning, seek professional advice from a financial planner, an accountant, a tax advisor, or a lawyer. They can help you assess your situation and provide personalized recommendations and solutions. Conclusion Inflation is a reality that we have to face and deal with in our daily lives. Following these five tips can minimize its negative impact and maximize your financial well-being.