5 Ways You Can Get Ahead of Inflation

5 Ways You Can Get Ahead of Inflation

Inflation. It’s a word that triggers either confused wrinkles on faces or deep financial concern depending on who you are. But it’s a very real thing happening right now. Just look at the huge markup for Christmas toys on eBay and other reseller websites.

At its simplest, inflation is a continued stretch of increased price for goods and services. Stats released on Nov. 11, 2021, showed the U.S. at 6.2% inflation — that’s well above the goal of 2% and the largest percentage increase year over year in 31 years

The pandemic, all those “Help Wanted!” signs, supply chain issues, and even our own “stock up now!” behavior is driving inflation. Many experts are saying inflation won’t slow until the pandemic and the avalanche of issues it has created is fully under control. But as an everyday investor, you aren’t powerless. Here are five ways you can get ahead of inflation:

1. Lock in Fixed Rates for Debts

In an inflationary economy, variable rates (or adjustable rates) for your debts — such as credit cards, mortgages, and car payments — are not your friend. Generally, the Federal Reserve will raise interest rates to combat inflation. When that happens, your rates will go up and your payments will be higher.

Instead, you want those interest rates to be fixed. With a fixed rate, the cost is less because the dollar loses purchasing power with higher prices and your investments and income continue to grow. If you already have fixed rates, and haven’t re-financed for longer duration loans, it may be worth checking out. Interest rates are at rock bottom levels, and they won’t stay there forever. Of course, you could always pay off your debts if you’re able to, which would put you in an even better financial position.

2. Closely Evaluate Large Purchases

Because inflation is already high and the conditions (pandemic, supply chain, labor shortage, etc.) that created this inflationary economy are likely to still be going on in the near future, the price of goods and services could continue to go up. Looking longer term, we don’t know how long it will last.

Some goods that fall into large purchases, such as cars and campers, already are highly inflated. So are other products like materials for a new deck or renovating your home. You’ll need to weigh the pros and cons of putting the project on hold or biting the bullet and accepting higher cost on those goods and services. It could be several years before supply catches up with demand and/or prices drop again. It could be wise to take a ‘wait-and-see’ approach, but just know it could be risky as well.

3. Get Real About Hedging

Real as in real estate. While many assets won’t be good ones during an inflationary economy, there are a few that you can purchase to hedge against inflation, including real estate.

With inflation, the cost of rent generally goes up. If you purchase an investment property with a fixed rate (which we learned above is important), your mortgage stays the same. But you can price the property’s rent at market price, which will rise with inflation. This, ultimately, creates more cash for you. Just don’t dip into any emergency funds or savings accounts that you will be relying on down the road.

4. Invest in Commodities

Another tangible asset for you to turn to during high inflation is a commodity, such as gold, oil, corn, or even — if you’ve watched the ‘80s classic Trading Places recently — orange juice.

Commodities tend to rise and fall with inflation. So, during times when inflation is high, they are a good investment. You will just want to keep an eye on when deflation starts so that you aren’t stuck holding a bag that no one wants.

Some people also consider cryptocurrencies like Bitcoin to be a commodity. But there isn’t enough data to truly track the record of cryptocurrencies during inflationary periods as a good hedge.

5. Don’t Keep Too Much Cash

Keeping some cash on hand is always a good idea. And cash includes your checking and savings accounts; not just the stash under your mattress. (We’re kidding about the mattress bit. Please don’t do that!) Typically, you will want enough money easily accessible to cover six months of your household expenses. This emergency fund can be a huge help if you are ever laid off from your job, incur huge unplanned costs, or struggling to make ends meet during times of inflation.

However, you don’t want to keep too much cash during high inflation, as it can actually decline in value. For example, if you keep more than six months’ worth of expenses in a savings account that only yields .3% and the rate of inflation is at least 2%, you are losing out on potential growth.

Instead, you may want to consider investing any portion of cash you have saved over and above your emergency needs. The stock market provides an opportunity to combat inflation, since historically, it produces better returns.

Need Help?

Inflation sure sounds simple, but it can be a complicated tightrope to walk when it comes to your money and investments. Let us help. Schedule a consultation with one of our expert financial advisors today.


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More About the Author: Sheena Hanson

Sheena is a highly regarded financial expert known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.