How do I protect my money from inflation?
When inflation is high and the economy is uncertain, you'll be better able to weather any storm with a smart financial plan.
The economy can bring about plenty of uncertainties, but with high inflation it’s top of mind for many people. If you have certain financial safeguards in place, you may be better able to weather potential storms. Here are some suggestions on how to fight inflation that may help you maintain a solid financial footing.
How to manage personal finances and save money
- Pay off debt. As challenging as it may be, make debt reduction one of your top priorities — particularly credit card balances with high interest rates.
- Create or add to your emergency fund. If you receive a refund, bonus or raise, consider putting a percentage of that money towards your emergency fund or savings.
- Consider refinancing your home. If mortgage interest rates are low, you may want to look into a fixed-rate loan. If you have an adjustable-rate mortgage and switch over to a fixed-rate mortgage, it may be easier to set a budget when you know what your mortgage payment will be.
- Look for ways to scale back. Consider moving to a smaller, more affordable home or apartment. At the same time, sell possessions that you no longer use — such as an exercise bike or collections of items that no longer interest you — and save the money.
- Reduce non-essential spending. Review your voluntary spending such as takeout, streaming subscriptions, entertainment or travel.
- Save when you shop. Take advantage of coupons, credit card points, store loyalty programs or membership cards that offer gas rewards. Try buying generic brands and even generic prescriptions to help you save even more.
- Try to live on one salary. If you and your partner are both employed, challenge yourselves to live on one income and put some or all of the rest in savings. Consider depositing some of that money into accounts that are accessible for emergencies.
- Negotiate. It doesn't hurt to ask for lower rates on credit cards and for discounts on merchandise. If there are sign-up fees for a particular service, see if that fee can be waived. Some retailers may agree, in hopes of keeping you as a customer.
- Renegotiate monthly service bills. These services include things such as cell phone plans, cable and internet. Many providers offer an introductory rate to attract new customers. After a certain amount of time, the rates steadily creep up. Look at your monthly costs and contact those companies to see if they are willing to negotiate a better price. It’s a good way to chip dollars off your monthly budget.
- Examine monthly subscriptions. Subscriptions for streaming channels, beauty products, magazines and delivery services can be easy to forget about, but the costs add up over the course of a year. It’s good practice to measure these as need versus want. Once you do that, it can help trim down to the necessities.
- Pay cash for purchases. Spend only what you have on hand right now. Put off purchases that require you to add to a credit card balance until you have saved enough to cover the cost.
- Enrich your salary potential. Learn new skills, ask for more responsibilities at work or even start a small part-time business. In a downturn, the expertise you bring to a position may help make you invaluable to your company — or give you options should you be downsized.
- Ask for a pay increase. While this may be an uncomfortable conversation for some, it’s not an unreasonable request, especially during times of near record high inflation. Advocating for your career is always important.
Financial risks to avoid during an economic downturn
- Raiding your retirement account. You'll typically pay a 10% federal income-tax penalty for removing the funds early, and you'll shortchange your future.
- Letting insurance lapse. Keep your home, disability, life and car insurance coverage current. If something happens to you during a down time, you'll need that protection.
- Co-signing a loan. It's risky unless you're sure you can shoulder the entire burden yourself. Even if the co-signer is trustworthy, there's no guarantee he or she won't default.
- Taking on additional debt. Thoroughly evaluate any outlay that results in debt. A student loan for your child may be a reasonable debt — but a big credit card expense is not.