Maintaining financial security during inflationary times can be challenging, but here are some helpful tips:
• Build an emergency fund.
Having 3-6 months of expenses in savings provides a financial cushion and security blanket. When prices rise, your emergency fund balance maintains its purchasing power while allowing you to avoid going into debt or selling assets.
• Pay off high-interest debt.
Pay down credit cards, personal loans and other debts that have variable or high interest rates. Interest charges during inflation eat away at your financial security over time. Paying debts off ensures all your money goes towards essential costs.
• Increase your income. If possible, look for ways to increase your monthly and annual income to keep up with higher costs of living. Ask for a raise, switch to a higher-paying job, develop skills that qualify you for higher pay, freelance or start a side hustle. Any extra income helps offset inflationary pressures.
• Consider inflation-protected savings. Some savings accounts and bonds offer interest rates that adjust upward with inflation over time. They help maintain and potentially even increase the purchasing power of your savings balance during high inflation. Treasury Inflation-Protected Securities (TIPS) are one example.
• Dollar-cost average into the market. Investing a set amount in the stock market, index funds or other inflation-beating investments on a regular schedule helps ensure you benefit from market gains even during inflationary times. When prices rise, so does the value of well-performing investment accounts.
• Review and increase insurance coverage. Inflation causes the values of properties, vehicles, belongings and medical services to rise over time. Review your insurance coverage periodically and increase policy limits as needed to maintain adequate coverage, especially for things like home/auto policies, health insurance and liability coverage.
• Build wealth for the long run. The best defense against inflation is earning and maintaining wealth over the very long run. Paying off debts, living frugally, investing regularly in the market and increasing your income/ skills over years and decades generates wealth that can keep up with inflation or even exceed it over time. Compound growth works in your favor.
• Consider inflation-protected bonds and annuities. For those close to or in retirement, certain bonds, TIPS and annuity products provide fixed income streams that rise automatically with inflation. They help ensure your money maintains purchasing power in retirement when on a fixed income.
