Is Inflation on Your Mind? Here Are 4 Tips on How to Face It

As we continue to see the effects of the pandemic on the economy, we are also seeing inflation rise to numbers we have not seen since the 80s. 

When we talk about inflation, we want to look at two things: today and tomorrow.

• What is the current impact of inflation on our everyday lives?
• What can we do now to help mitigate the current effects on our household spending and our long-term retirement savings?

However, the truth is that much concern surrounding the increase in price demands relies on the individual experience. 

Inflation measures how fast prices for goods and services, such as food, rent, clothing, gas, etc., and those things are increasing. Your age, economic standing, and personal beliefs will reflect how you react to these increases. Younger folks may feel these changes more when purchasing homes, whereas older folks on fixed incomes may be more vulnerable to healthcare costs.   

So, what can we do to prepare?

1. 50/30/20 Rule 

What Is the 50/30/20 Rule? The 50/30/20 Rule is a set of simple guidelines for how to plan your budget. With this approach, you allocate your paycheck to the following categories.    

50% to Needs - What you can’t live without (or at least very easily)   

• Rent   
• Groceries  
• Healthcare 
• Utilities, such as electricity, water, and sewer   

30% to Wants- What you desire (but don’t actually need)   

• Hobbies   
• Vacations   
• Dining out   
• Entertainment 

20% to Savings Goals (This category covers two main areas)   

• All savings, such as retirement contributions, saving for a house and setting money aside in a 529 college savings plan   
• Debt payments   

The 50/30/20 Rule is an excellent place to start considering an overall budget. Of course, the actual specifics of that budget will change over time with inflation to reflect the current prices of necessities, but keeping this structure in mind can help you shift things around when making a plan. 

Expect the unexpected. A great way to prepare for inflation is to build it into your budget. If you plan and make room for inevitable increases on a few things here and there, you’re more likely to reach your goals even when facing unprecedented surges. 

2. Be Proactive 

There are a few things one can consider when trying to combat inflation. Paying off variable debt can be a huge relief. This can include things like variable interest rate credit cards and mortgages. When inflation rises, so do variable interest rates. It may not always be the best option, but if you find that your variable interest is getting out of hand, consider speaking with a trusted advisor about refinancing to a fixed rate. Fixed rates will remain the same regardless of inflation- making them easier to budget. 

Audit yourself regularly. Take inventory of what is eating into your 50/30/20. Often, we find ourselves paying for things we either didn’t know about or no longer need. Similarly, these audits help you identify what you can replace, eliminate, or look for a better deal elsewhere.   

3. Invest For & In Retirement

Regardless of what happens over time, you want to ensure that you are prepared and taken care of for retirement. So, when investing for retirement, the bucket strategy is always a great starting approach.

The Bucket Strategy  is set up to provide consistent cash flow in retirement from a combination of Social Security and Pension. Etc. And a bucket of conservative assets that won’t ebb and flow too much with the markets. That defensive bucket aims to produce conservative returns to replenish that first cash bucket. Eventually, those two give the last equity bucket time to weather the storms of the market. 

This isn’t a one-size-fits-all approach, but the key here is to think long-term and plan strategically ahead of your retirement. Options available to you that benefit you, in the long run, will be favorable when your career and working years end. 

4. Don’t Panic

Inflation surges can feel frightening, especially when the costs of your daily essentials start to feel out of control. But when it comes to investments, attempting to outrun the market or make sudden and impulsive moves rarely ends well.  

Historically, stocks have outpaced inflation, making it more beneficial to stay put and only make strategic moves instead of quick risky ones. Cashing Out Has Historically Meant Missing Out. Investors who panic and sell often miss the upside if markets rebound.   In fact, for tips on protecting your retirement savings, check out Market Volatility and Your Retirement Savings to give you peace of mind when it comes to your financial wellbeing. 

Are you looking for more financial topics? Our Financial Academy page has you covered! Find helpful resources to help you do your best work and live your best life.