The word that’s got everyone who’s trying to manage their money on edge: inflation. Between August 2021 and August 2022, the Consumer Price Index (which measures the average prices of groceries, housing, and other necessities) rose 8.3%.
How do we stop the inflation madness?
The Federal Reserve — the central bank that handles US monetary policy — says it's on the case. To try and slow price hikes, it’s pulled back some extra pandemic help it was giving the economy. And raising interest rates, hiking its benchmark rate to 2.25%-2.5% in July. It plans to keep increasing interest rates throughout 2022.
Are there ways to protect my finances from inflation?
While lawmakers work on ways to handle inflation, you can work on your wallet. Some ideas:
1. Bring your budget up to speed.
Still relying on last year's spending plan, from when everything was considerably cheaper? It’s probably time to switch it up. Make room for the necessities — including their higher prices — and your money goals. Then consider where you can cut costs or negotiate some down.
As costs for things like rent and medical care keep ticking up, remember you have the power to negotiate. It’s not guaranteed to bring the prices down, but it can’t hurt to ask.
3. Get rewarded.
Your credit card can help you get money back on spending you have to do anyway. Make purchases on a card that offers a statement credit, travel points, or other rewards every time you swipe. Or if you want to rack up cash back but not a balance, try apps like Honey and Rakuten.
4. Go for yield.
For your emergency fund and other short-term savings you need easy access to, look for a high-yield savings account.These help your money grow (a little) faster than in a checking account or regular savings account that offers low or no interest. The average savings account won’t pay enough to beat inflation alone, but it helps.
5. Don't keep more in savings than you need.
Cash isn't king during periods of high inflation. For far-off goals like buying a home, sending a kid to college, or retiring, investing gives you the best chance at growing your money. Stocks are most likely to beat inflation over time because they offer the highest potential long-term returns. Keep in mind: higher rewards = higher risks.
6. Be passive about earning more.
As in, set up some passive income streams. One idea: if you have a spare room, storage space, or parking spot — or maybe pricey tools like a lawnmower or snow blower — you can rent them out for some extra cash with minimal extra effort.
7. Be assertive about earning more.
How long is inflation going to be a thing?
The million dollar question. While some factors indicate inflation could ease soon, uncertainty related to the war in Ukraine along with the ongoing pandemic recovery means it will take a while for prices to come down. Read: probably not until 2023. (PS: Inflation is even worse in some other countries.)
Inflation affects just about every part of your financial life.Though you can’t control inflation, you can control your budget — and adjust your spending when possible.
Updated Sept. 13 to include the most recent inflation data and predictions.
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