Professional tips on navigating an unusual time for the economy
Whether you've been following the headlines, checking your financial apps, or simply paying attention to your recent purchases, you're probably aware that inflation is the highest it has been in 40 years. This means that prices go up, for everything from groceries to petrol – not to mention clothes, cars, computers and more.
If you're like me – that is, if you're a member of the Millennial generation – you have never really experienced a period of prolonged inflation. What should you do financially when prices continue to rise? We asked the experts and got four savings tips on how to prepare for inflation as consumers.
In this article:
Adjusting your budget
What is the first thing you should do when the cost of consumer goods goes up ? Adjust your budget.
"In the short term, Millennials should adjust their budget so that inflation costs can use more of their income," explains Scott Nelson, founder of MoneyNerd. With higher inflation driving up the cost of everyday shopping, it's important to make sure your budget reflects what you're actually spending on groceries, gas and other essential items – as well as discretionary items such as restaurants and entertainment.
Having calculated the expenses that have experienced rising prices, you may start to ask yourself where you may need to cut back. This way, you will be able to keep your expenses within your resources as much as possible – and avoid taking on credit card debt that you do not need.
If you can defer certain types of discretionary expenses until, if and when the prices drops you can save even more money. "By waiting until higher prices start to trend downwards, you may find yourself with more purchasing power for the same item in another year or two," says Tanya Taylor, CPA and founder of Grow Your Wealth.
On the other hand, you should also ask yourself if it is worth buying some everyday goods as quickly as possible – especially if you are buying goods with an expected price increase as inflation continues to rise. "Buy high-quality, long-lasting products or buy in bulk," advises Nelson. "When inflation increases the cost of consumer goods week by week and month by month, it is best not to have to buy with each increase. Buy in bulk and buy quality and save yourself in the future."
When inflation drives up the cost of everyday purchases, it's important to make sure your budget reflects what you're actually spending.
Building an Emergency Fund  "The Covid-19 pandemic has shown how important it is to have a crisis fund," says Taylor. crisis fund provides you with a financial safety net that can cover any unexpected expenses and / or protect you during a period of unemployment.
How much should you save – and where should you put the money? Many experts recommend that you put expenses for between three and six months in a high-yield savings account, so you can maximize your
"One of the disadvantages of emergency funds is the need for liquidity and accessibility, which is a double-edged sword in this environment of low interest rates and high inflation," he said. Taylor for us. "This means your money does not earn anything. Explore opening a high-yield savings account or money market fund instead of a traditional savings account. Online banks tend to offer more competitive rates, so look at these options as well."
What if you already have During a period of inflation, you may want to consider adding your savings. "With rising inflation, the amount you need may have increased," Taylor explains. "If you already have an emergency fund, consider reviewing the amount again for to decide if it would be enough to meet your needs. "
Once you have recalibrated your budget and increased your savings, what should you do with any remaining disposable income?
Some financial experts would suggest that Historically, equities have been more likely to rise during periods of high inflation, which means that money you invest in the stock market can increase, especially if you choose your investments wisely. However, it is worth noting that the market has experienced a downturn when this article is edited, partly due to speculation about measures that the Fed can take to reduce inflation – such as higher interest rates, which makes borrowing money more expensive, and tends to decrease expenditure. This shows that you should only invest if you are comfortable with the risk that the value of your investments may decrease, even if the trend over time for the stock market is positive.
Depending on what the financial markets look like, “make sure to invest your disposable income in shares, ”says Nelson. "While bank accounts are secure, they continue to offer low interest rates and that certainly does not cover rising inflation." (Again, although the market had risen steadily when we spoke to Nelson, it has been in "correction mode" – that is, market value has fallen – in recent weeks.)
If you want to put your money on the market, you a wide range of choices, says Taylor. "Depending on your savings goals and risk tolerance, there are many options available. Individuals who want more control over their investment decisions can invest in individual stocks. Those who want a more diversified mix of investments can choose index funds and exchange traded funds, which generally have lower fees. than funds. "
If you invest, you can also do it to reflect your values. If you are interested in social justice, for example, you can look at sustainable investments (often called socially responsible investments) or investments for racial justice. If you do not want to choose your own stocks or mutual funds, you can use a roboadvisor to create and manage your investment portfolio.Many parents invest in 529 plans for their children, and many people invest in IRAs, 401 (ks), HSAs and other tax benefits
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Think about real estate
There are other places to invest your money during an inflation period – including real estate.
Now may be a good time to buy a home, for example. "While interest rates have risen in recent months, they are still at historic lows," Taylor said. "And the higher the credit you have, the more favorable the interest rates."
Nelson agrees. "While it can be daunting to buy a home during this high market, paying off a mortgage with currently low interest rates and owning a property that can increase in value is a great way to absorb inflation on consumer goods."
Some cities It can still be more cost-effective to rent an apartment than to buy a home. However, there are many benefits to buying a home – including the ability to renovate your home and create value, rent your home on Airbnb and / or become a landlord.
here – by reducing the amount of money you spend on short-term discretionary items, you can increase the amount of money you spend on long-term financial goals such as emergency funds, education, real estate and retirement. Although each individual investment can fluctuate with the market, most investments tend to experience economic growth over time – and do not forget that you can also invest in yourself and your skills, from building job skills to building money.  " "Defeating high inflation is all about getting on with it, managing your finances and planning ahead in the short, medium and long term," says Nelson. Start your own inflation protection by tackling short-term tasks such as budget allocations, then work on medium- and long-term ones such as saving and investing. It's hard to say how long our current inflation period will last – so Millennials should make as many smart financial moves as possible and build the kind of financial stability that can provide value no matter what happens next.
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