If you’ve watched the numbers climb higher than usual as you fill your tank with gas or noticed your grocery bill surge even though you’re not buying anything extra, this is the result of the worst surge in inflation in America for the past 40 years.
Due to federal policies, supply-chain delays, pandemic shortages, and consumer demand, prices have escalated on food, goods, services, energy, and housing in the past year.
While there’s no way to avoid inflation altogether, financial advisers offer tips to help you avoid the worst effects.
If you’re worried about your money losing value, check out these 12 strategies to protect your money during rising inflation.
A lot of people don’t think about stashing cash against inflation.
Although cash won’t grow interest like other assets, it usually keeps up with inflation if short-term interest rates also rise.
Financial planners, such as the founder of Dare to Dream Financial Planning, recommend storing 6–9 months’ worth of expenses in a CD, money market account, or high-yield savings account for single households and six months in a CD, money market account, or high-yield savings account for two-income households.
It’s a good idea to keep your money in a short-term CD if you need fast access to it and don’t want to pay fees for early withdrawal.
BrioDirect High Yield CD is a top choice for 3-month CDs, while iGObanking.com has six-month options, First National Bank of America CD has a 3-year option, and Ally Bank High Yield CD has a 5-year option.
2. Short-term bonds
Another great way to keep your money accessible and safe is by putting it into short-term bonds.
Short-term bonds tend to act more resiliently than long-term bonds when inflation causes higher interest rates.
Therefore, during rising inflation periods, it’s good to stick to short-term options during rising inflation periods since these are less likely to be affected if interest rates soar rapidly.
The good news is that you can also reinvest your short-term bonds at higher interest rates as your bonds age.
TIPS aren’t one of the first things that most people think about when it comes to protecting their money from inflation.
TIPS, or Treasury Inflation-Protected Securities, are federal bonds that mimic rising and falling inflation. This happens because TIPS’ prices adjust according to the Consumer Price Index.
The Consumer Price Index measures how consumer prices are paid over time. If inflation rises, TIPS’ interest rate will go up, too. When deflation happens, the bond’s interest rates mirror its fall.
Since TIPS are backed by the full faith and credit of the U. S. government, they’re an excellent hedge against inflation. They’re also the type of investment that can help supplement your retirement funds in the future.
Peapack Private Wealth Management says that because TIPS are designed to keep up with inflation, they can help you diversify your portfolio or make up for a fixed income.
- TIPS bonds offer a fixed interest rate if you’re interested in buying bonds. Interest pays out twice a year.
- Depending on your preference, you can get TIPS bonds issued with five, ten, or 30-year maturities.
- Once your bonds reach maturity, the bond will pay out either the adjusted or original principle.
4. Real estate
Consider getting into real estate if you’re looking for a different way to invest your money during rising inflation.
When landlords increase rent, this also raises their income, which keeps them at pace with rising inflation.
If you’re interested in getting into real estate, you can invest in property you rent and manage. You can invest in crowdfunded real estate platforms, real estate mutual funds, or REITs (Real Estate Investment Trusts).
It’s hard to predict how the post-pandemic real estate market will react to inflation.
However, since commercial real estate, retail, and office space are currently expensive, many companies are turning to remote work or adopting hybrid models.
Even if housing prices are skyrocketing, mortgage rates are also often low during these periods. This means that you can borrow funds to invest in real estate properties without paying high interest on the loan.
Ways to get into the physical real estate market include buying a fixer-upper house, renovating it, flipping it for sale, or renting it out for cash flow income.
Gold is a solid investment during periods of high inflation. While there’s no guarantee that this will always happen, gold has a reputation for keeping up with long-term inflation. This typically refers to decades rather than a year over year.
There are several ways to invest in gold.
- First, you can buy actual gold bars or gold coins. An easier way is to put your money into a gold IRA or even a precious metals mutual fund.
- Second, diversifying your stock portfolio with gold investments means you won’t have to worry about safely buying and storing gold bullion.
Gold, stocks, and savings accounts aren’t the only ways to hedge your money against inflation.
Check out ways to invest in raw materials like foreign currency, other metals, oil, or agricultural products such as beef and orange juice. During inflation, most of these resources tend to increase as well.
Since the prices of commodities are usually based on supply and demand, it is a risky field to invest in.
Although you could lose big by investing in commodities, there is also the chance for big rewards. A commodities ETF (exchange-traded fund) is one way to cut down on inflation-related losses if your ETF is one of those that are going up because of inflation.
The chances are that you’ve heard of cryptocurrency by now. Maybe you’ve even considered investing in this area.
Since cryptocurrencies like Bitcoin are sometimes called “digital gold,” the idea that there are only so many of them should, in theory, protect against inflation.
It’s hard to say if crypto would protect against long-term inflation because it’s hard to predict what will happen after a pandemic or with investments.
If you’re comfortable with risk-taking, cryptocurrency investing might work for you. However, financial planners recently warned Fortune readers that Bitcoin had had a volatile run recently. This makes it challenging to include it in a diversified and risk-calculated portfolio.
8. Invest in fine art
A unique way to invest your money in an inflation-resistant area is the field of fine art. Even during high inflation, the art market continues to sell pieces at auction for over $1 million.
Even if you don’t have that type of cash to invest in, you can check out companies like Masterworks to invest in a small piece of art. When the art sells, investors hope to gain a financial reward.
Research what kind of art you would like to invest in and get advice from reputable advisors or art dealers.
9. Overhaul your budget
Now that we’ve covered investment ways to protect your cash against current inflation trends, there are other lifestyle strategies that you can adopt to keep more money in your wallet.
Inflation can hit your bottom line hard. Costs for necessities like food, utilities, and gas result in some of the steepest inflation hikes.
This is where savvy budgeting habits can help you hang onto more of your money during tough economic times.
- For instance, you can clip coupons or add digital ones to your store account. Try to buy generic or store brand items rather than focusing on pricier name brands.
- Turn down your thermostat by one or two degrees and bundle up with a sweater or an extra blanket.
- Open a window to catch a fresh breeze if you’re turning up your air conditioning during the day.
Over time, you can track your progress to see how cutting back in many different little areas can make a difference in saving money.
10. Avoid buying a car if possible
With both used and new car prices increasing 11.1% in the last year, delaying your purchase can help you save money.
Even though auto rates are low, supply chain shortages and consumer vehicle demands have combined to create a feeding frenzy in the car market. You might think that new cars cost a lot, but inflation has worsened used vehicles. In the past year, prices have risen by 31.4%.
If your current car gets you to work and doesn’t need a major repair to make it safe and drivable, it’s a good idea to save your money and avoid significant purchases.
If you’re feeling bored with your car and want to spend a little money, opt for car detailing that can make your car feel new.
Some people might even want to consider buying out your car lease if you have one running out in several months. This can be more cost-effective than looking for a new car or shopping for a new lease. Most of the time, buyout prices are based on the lease contract, which would be less than what the car could be sold for now.
While this isn’t an option for everyone, if buying a car isn’t an absolute necessity, it may be wiser to wait out inflation until car prices normalize or come back down.
11. Buy more veggies
You probably noticed how the price of meat has surged since the pandemic. Most of these high prices are related to animal products such as meat, eggs, and dairy.
The good news is that not all grocery items have experienced high inflation. So get creative with meal planning by buying more vegetables that have not experienced the same inflation craze. You can also buy chicken instead of beef since chicken has only increased by 9.2% instead of 20.9% like beef.
Canned and frozen seafood and chicken have also not experienced price hikes.
Research what grocery items have increased in the past year and find ways to buy fewer of them.
12. Try to spend less
Finding ways to spend less overall is one of the best ways to protect your money against inflation.
Since costs for necessities are surging, it’s time to rein in discretionary spending that can blow your budget and leave a hole in your bank account.
Curtailing extra spending might not be as hard as you think. Check for unused subscriptions, curb impulse purchases, fancy vacations, over-the-top gift buying, or an Amazon Prime habit.
Spending less is about changing your mindset and becoming more mindful about what you spend and why.
Spending less offers the financial benefits of a full bank account, but it also provides psychological benefits, including more confidence, security, and peace of mind.
Image by: [Geralt]