Inflation is on the increase around the world, with food and energy prices hitting record highs - exacerbated by the Russian invasion of Ukraine. But has inflation peaked? And what's the fix?
If you're like most Americans, you may be wondering where all of your money is going at the end of the month.
Inflation has taken a toll on many Americans this past year. Inflation is at an all time high coming in at a rate of 8.6%, which is the highest level it has reached since 1981. Whatsmore, the average American household is spending as much as $460 more on the same things they were purchasing last year.
There are countless amounts of articles and blogs that will walk you through inflation and how it works, but not enough on how Americans can survive this historic inflation crunch. Whether it's budgeting, cutting expenses, or boosting your income, there are always ways to help counter the impact of inflation.
Here is what you need to know.
Lifestyle Changes
Before we get into ways to grow your money back, there are day-to-day changes you can make that will add up quickly and positively impact your nest egg.
Budgeting
Budgeting isn't fun for anyone (well, aside from number-crunching fanatics), but it is a crucial aspect of getting your finances in order. Time and time again, too much money goes out and not enough comes in. Mastering your money is key to financial success and happiness that lasts. Luckily, there are many online resources you can use to help you budget more effectively.
The very first thing most individuals do when it comes to creating a budget is pay their bills. While this is not a bad thing, maybe you can look at it in a different lens. Perhaps trying a new approach can help you save more in the long run?
When you create your budget, start the other way. Ask yourself, “How much money can I use to pay myself first and treat myself as your main priority in life?” Either way, establishing a realistic foundation of your current financial status is the best way to establish your footing against the raging inflation storm. A great place to start is with our free online calculators here.
Cutting Expenses
When it comes to cutting expenses, you should think about doing this realistically. In a perfect world, we could cut our rent or mortgage payments in half and have this solve many of your money problems. However, it's not a perfect world, so we must go after cutting unnecessary expenses instead.
In the past most people would be able to pass on a nice dinner out monthly to cut unnecessary expenses. However, inflation has made it easier to see shrinkage even by cutting out this cost. In order to combat that shrinkage, have a conversation with yourself: “Is this something I need? Is this something I’m getting the value out of? For most people, there’s a lot of expenses that they can cut and they’re not even going to notice a difference.
An easy way to start is by canceling services you don't use as much as you thought you would such as streaming services and gym memberships. You can track these down yourself, or you can utilize online apps such as mint to help monitor your spending.
Other ways to trim your expenses during inflation include:
- Join your grocery’s shopper-loyalty plan; some programs automatically load digital coupons for things you already buy.
- Look over your grocery store’s weekly sales flyers.
- Organize your errands to cut down on driving.
- Can you work remotely? Discuss a hybrid schedule with your boss to cut your weekly commuting costs.
- Shop your necessities: mobile phone and internet plans, insurance policies (home, auto, health), banking services.
At the end of the day, sit down and map out what is no longer serving you and cut it. You will be surprised with how much you can save by canceling subscriptions or switching to a different provider.
Financial Changes
Now we have your lifestyle changes noted, it's time to talk money. More importantly, how to grow your money in these challenging financial times.
Boosting Income
We are currently in the peak of the workers market. Meaning, there are jobs and opportunities for many people. Depending on where you work and if you're still in the workforce, now may be the most efficient way to increase your income. With job openings at an all time high and layoffs at a historic low, employers are trying hard to keep their employees.
Asking for a raise is one way to boost your income. Another way to do this is by reviewing the salary data for your role and job description. Could you earn more elsewhere? Having a well-planned strategy, but pointing out the truth of the marketplace is fair game.
Maybe it's time to scratch that side-hustle itch. The gig economy remains very much with us, and picking up extra cash might be no more than a mouse click away. This is especially true if you have expertise gained through education and experience. This could easily lead you to market your freelance skills as a retiree.
This applies especially to seniors who’ve lately discovered their retirement financial plan needs some patchwork. A great opportunity for seniors is working for a small business that needs someone highly experienced with flexible hours. It could be a win-win for someone looking to do a phased retirement.
Savings Strategies
Taking advantage of your company's 401(k) is the best way to pay yourself first –especially if your employer offers a match. Make a contribution or take full advantage of this opportunity.
After age 50, your retirement plan may allow you to make catch-up contributions. These let you make additional contributions—beyond the regular maximum contribution, which you must first meet—to your IRA or your organization's plan (if applicable). In 2022, you can make a maximum annual contribution of $20,500 to your employer’s retirement plan if you’re still working. And if you’re age 50 or older, you may be able to make an additional catch-up contribution of up to $6,500.
Focus on Investments - Safe Investments
When you’re nearing retirement, you need a somewhat different approach to protect yourself from inflation. You can’t afford to take as much short-term risk with your investments because you need them to provide a steady income for you to live on.
In this situation, you need investments that offer decent yields with little risk. Good lower-risk investments as you near retirement include certificates of deposit (CDs), Treasury bonds, municipal bonds, and annuities.
These investments protect your principal, but they carry a risk of their own: the interest rate they pay might not keep pace with inflation. If the inflation rate is high, money tied up at a low, fixed interest rate will lose value over time.
Finally, have you considered using dollar-cost averaging to build wealth over time? Dollar-cost averaging requires the investor to invest the same amount of money in the same stock on a regular basis over time, regardless of the share price. The number of shares purchased each month will vary depending on the share price of the investment at the time of the purchase. The idea being when the share value rises, your money will buy fewer shares per dollar invested. When the share price is down, your money will get you more shares. Over time, the average cost per share you spend should compare quite favorably with the price you would have paid if you had tried to time it.
Beating Inflation with Agemy
If you’ve checked in on your retirement savings during a period of volatility and noticed lots of seesawing in value, it’s possible your current mix of investments, called an asset allocation, could use some adjusting. This is where speaking with your trusted Fiduciary advisor can help. This is because an experienced financial professional can help talk you through what’s happening in the markets that you don’t understand.
At Agemy Financial Strategies, we provide solutions for your specific financial situation. Whether it's helping you strategize asset allocations to help stomach inflation, or revising your current plan to make helpful amendments –we are here to help.