7 Ways to Inflation-Proof Your Finances: Practical Strategies for Everyday People
Let’s face it: money is always on your mind. In fact, a recent survey from the Certified Financial Planner Board of Standards found almost 9 in 10 Americans feel concerned about the current cost of living in the nation. Inflation, or the gradual increase in prices of goods and services over time, can erode the value of money and savings if not accounted for in long-term financial planning.
When facing high inflation, there are a few things that everyday people can do to protect themselves financially:
Control spending
One of the most effective ways to mitigate the impact of inflation is to control your spending. By prioritizing needs over wants and looking for ways to save money on essentials like groceries and housing, you can stretch your dollars further and minimize the impact of rising prices.
Consider refinancing debt
If you have high-interest debt, such as credit card debt or personal loans, it may be worth exploring options to refinance or consolidate your debt so that you can get a lower interest rate. This can reduce your monthly payments and help you pay off your debt faster, freeing up more money for other expenses.
Build an emergency fund
An emergency fund is a crucial tool for weathering financial storms like inflation. Setting aside several months’ worth of living expenses in a high-yield savings account or other low-risk investment gives you a cushion to fall back on if unexpected costs arise.
Lock in a low rate on term life insurance
While term life insurance policies are typically not designed to adjust for inflation, locking in a low rate on a term life insurance policy can still be a smart financial move for young, healthy individuals concerned about future inflation. By securing coverage early on in life, individuals can lock in a lower premium rate for the policy term (which can be up to 30 years), which can offer financial protection for loved ones in the event of an unexpected death.
Fund a retirement account
Accounts such as 401(k)s, or IRAs allow individuals to invest in stocks, bonds, and other assets that can potentially generate returns greater than the rate of inflation. Plus, these accounts are tax-deferred, meaning you don’t pay taxes as they grow (of course, be sure to talk to a tax expert to understand your specific situation). By regularly contributing to retirement accounts and selecting inflation-protected investment options, individuals can build a nest egg protected from the effects of inflation. Furthermore, many employers offer matching contributions to retirement accounts, which can boost retirement savings even more.
Invest in assets that appreciate with inflation
If you’ve covered the foundational items mentioned above and have additional income available, you can start thinking about the best way to invest your money. Investing in assets that historically appreciate, such as stocks, real estate, and commodities like gold, can help protect your wealth over the long term. However, it’s important to remember that investing always carries risk, so it’s essential to do your research and consult with a financial advisor before making any investment decisions.
Consider alternative income streams
Finding ways to earn additional income, such as through freelance work or a side hustle, can help supplement your regular income and provide an extra layer of financial protection against inflation.
Ultimately, the key to navigating high inflation is to be proactive and stay informed. By taking steps to control your spending, build a financial cushion, and invest wisely, you can help protect yourself and your family against the effects of rising prices.
Jeremy Bill is the Chief Insurance Officer at digital life insurance company Bestow. As CIO, Jeremy leads the actuarial, underwriting, and operations team as they design new products that reach more customers and support the insurance carrier partners that utilize Bestow’s technology.
