Seven personal finance ideas to fight inflation


Inflation is here and it doesn’t look like it’s going to go away any time soon. Consumers experience higher prices on food, gas, rent, and many other everyday goods and services. Many families are changing their investment strategy by allocating capital to real assets like apartment buildings or hard currencies like gold and bitcoin.

Putting investment strategies aside for a moment, is there anything you can do to fight inflation as a consumer? In fact, there are a lot of things you can do.

As inflation changes, people’s time preferences for their money also change. If you expect inflation to be lower in the future, you’re more likely to delay the gratification by saving and investing your money for the future. Conversely, if you expect inflation to rise, you are probably more inclined to spend your money today, perhaps because you fear your money will buy less in the future. As such, it may be worth considering making some common sense changes to your approach to personal financial planning, ranging from how you finance your home to the type of car you buy to how you buy. your food.

Now, if you think inflation won’t stay high and drop back into the 1% to 2% range, it probably doesn’t make sense to make any changes. However, suppose you are concerned that price increases will stay above 3% on average and real (inflation-adjusted) interest rates will remain negative. In this case, you may want to reconsider some of your financial planning decisions, while making sure that they reflect your individual financial situation and your personal tolerance for risk.

1. Buy rather than rent

In times of inflation, the decision to rent or buy generally favors buying rather than renting your home. When you are a tenant, your landlord will likely increase your rent to inflation level when your lease expires each year, which can be good when inflation is low, but this is much less desirable when inflation is high. high. As a tenant, your housing costs are not protected against inflation. On the other hand, there are two good reasons to buy your home. First, as a homeowner, your mortgage payments are usually fixed. Second, the replacement value of your home is likely to increase with inflation, as the cost of land, materials, and labor all increase with inflation. Owning a property helps protect you from inflation.

2. Finance your home with a mortgage

It’s a terrible time to be a lender or a bond investor because interest rates aren’t even high enough to compensate investors for inflation. However, now is a great time to be a borrower, assuming you aren’t taking on more leverage than you can handle. If you get a fixed mortgage that’s as long as you can get, you’re making inflation working for you. Some homeowners borrow money for 30 years and pay less than 3% per annum, before taking into account the tax deduction on interest charges. However, the best thing about a mortgage is that the inflation-adjusted value of your mortgage payments goes down as inflation rises.

3. Get an auto loan

The interest rates on auto loans are also incredibly low right now. If you expect inflation to stay high, it makes sense to finance the purchase of your car for the same reasons it makes sense to finance the purchase of a home. Just be sure to look for extended fixed rate loans whenever possible. If you can get an interest rate of less than 3% and borrow responsibly, you’ll end up paying off your debt in the future with cheaper dollars.

4. Improve your energy efficiency

If you own a car that uses a lot of gasoline, you should prepare yourself psychologically and financially for higher prices at the pump in the future. You may want to think about lowering your future gas bills by purchasing a car that is more fuel efficient or, better yet, runs on electricity. At home, you might consider installing solar panels to lower your future electricity bills. To reduce your heating and cooling costs, you have many levers to operate, such as sealing your windows and doors. Energy efficiency projects are more likely to generate a high return on investment in inflationary environments where energy costs are rising rapidly.

5. Prepare for shortages

Shortages are quite common in high inflation environments. For this reason, you may want to consider creating and maintaining an emergency supply of non-perishable foods and other essentials during times when stores cannot restock. Yes, that includes purchasing excess toilet paper, but it also means stocking up on canned goods and other non-perishable items that you can find for sale. Fortunately, with prices rising rapidly, purchasing emergency supplies can be a high-interest savings vehicle: commodity prices are likely to rise at a much faster rate than the rate of change. interest from your current account.

6. Buy durable and durable products

When looking to buy a durable good, like a washer and dryer, buy a quality product that probably won’t need to be replaced or fixed anytime soon. Although your purchase price may be higher, the investment could keep your expenses over the life of your property more manageable.

7. Follow a budget

Set a budget and focus in particular on categories of spending that inflation may affect in the future, such as transportation, food, utilities, education, and health care. Think about ways to stretch your budget further, such as shopping at cheaper stores or bulk stores like Costco. Also consider what expenses you can cut or reduce without affecting your quality of life.

While we consumers may fear inflation, it is possible to prepare for it. If you think inflation is going to rise, you can help mitigate its effects by making big purchases now, taking on reasonable debt at low interest rates if possible, and preparing your home and family for the worst. cost increases. You can’t control the rise and fall of inflation, but you can control your own financial decisions and make choices today that will help you manage inflation tomorrow.

Disclosure: This article is for informational purposes only and does not constitute a recommendation of any particular strategy. Opinions are those of Adam Strauss as of the date of publication and are subject to change and Pekin Hardy Strauss Wealth Management Disclaimer. Follow me on LinkedIn. Discover my company website or follow us on Twitter.


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