5 changes you need to make with your money right away to survive inflation – Business Insider | Vette Leader

  • I was concerned about how inflation will affect my money, so I asked financial planners.
  • They said to start checking my money more often to make spending cuts if needed.
  • They also said to avoid holding excess cash at the moment and get rid of high-interest debt.

One of the financial buzzwords that pops up in most of my conversations these days is inflation. It shows up at dinnertime, when restaurants say they’ve had to increase their menu prices (for many reasons, including inflation), and it’s evident when you browse prices at grocery stores, gas stations, and even retailers.

The consumer price index, which measures a range of goods and services, rose 7.9% over the past 12 months, a 40-year high, according to the Bureau of Labor Statistics.

With all this talk about inflation, I began to wonder if I should consider it with my own personal finances and investments. If yes, what should I do and how do I start?

“Inflation is definitely something that needs to be considered when planning. It’s called a surreptitious tax — it undermines the value of your wealth, capital and purchasing power,” says financial planner Eric Brotman. “The part that can be the hardest is that we haven’t seen inflation the way we’re seeing it now in many years, so we have generations that have never seen it.”

I decided to turn to financial planners for advice on what to do with my money.

1. Check your finances more often

I’m very careful to check my finances weekly, but financial planner Marigny de Mauriac recommends checking your cash flow more frequently because inflation can affect your finances at different times.

“Not all items are subject to the same rate of inflation. It’s important to routinely review cash flow,” says deMauriac. “Set an appointment with yourself once a month and put it on your calendar. You want to know what money is coming in and where it is going out. Gasoline, for example, has become more expensive recently. If you spend more money on gas to commute to work, you may need to cut back on your spending in other areas to avoid overspending. Small changes add up over time, even if it doesn’t feel immediately gratifying.

2. Check cash holdings

I have a lot of money in a savings account, which Brotman says is a bad rap. He says it’s important to realize that inflation is preventing that money from growing.

“Cash lags behind the cost of all goods and services, so you’re basically making a negative return on your cash,” says Brotman. “Cash is no longer a useful asset to accumulate. You should still hold cash for emergencies and liquidity, but it will continue to underperform. It might be time to diversify excess cash into another asset class.”

3. Get out of debt

One of the many ways inflation can hurt a person’s finances is through how it affects their debt. Financial planner Jay Zigmont says it’s important that people focus on getting out of debt during this time.

“The combination of inflation and rising interest rates means debt is going to be a much heavier burden for most people,” Zigmont says. “Average credit card interest rates are expected to increase from 16% to 17%. When you add the increased interest rates to the higher prices of everything, you should expect both your balances and your minimum monthly payments to increase.”

Zigmont recommends blocking your credit cards to keep you from incurring further debt and holding off on taking out new loans. “If you want to make progress in deleveraging, you have to stop adding debt,” says Zigmont. “Then make it your goal to pay off your debt as soon as possible.”

4. Try to increase your income

If inflation is drastically affecting your lifestyle or budget, deMauriac recommends not only reviewing your cash flow, but also looking for ways to increase your income to afford the rising costs of goods and services.

“It can mean taking on a second part-time job, having a side job, learning and changing careers, negotiating a promotion or raise, or exploring a new job opportunity,” says deMauriac. She recommends business owners take a look at their service offerings and billing structures to find new revenue-generating opportunities.

5. Rethink your bond investments

When reviewing your investment portfolio, Haley Tolitsky, a financial planner, advises paying attention to your fixed income (including bonds, cash, and CDs), since these are hit hardest during periods of high inflation.

“When interest rates rise, bond prices fall because new bonds are issued with higher interest payments,” says Tolitsky. “If you have bonds in your investment portfolio, make sure you’re not too conservatively invested for your time horizon and consider short- to intermediate-dated bonds rather than long-dated ones, which are more sensitive to changes in interest rates. Equities, on the other hand, tend to far outperform inflation over the long term, although they may be subject to short-term volatility due to shifts in the economy.”

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