Rosalind Evans
Although the sting of inflation has lessened slightly, its current rate still raises concerns for many.
Recent data from the Bureau of Labor Statistics indicates a 5% inflation rate over the year leading to March 2023. While an improvement from the 8.5% witnessed between March 2021 and 2022, it remains a significant deviation from typical rates.
Nevertheless, there are several strategies available for consumers to mitigate inflation’s effects, ranging from eliminating certain expenditures to simply being more frugal. In late 2022, amidst severe inflation, the Consumer Financial Protection Bureau (CFPB) shared valuable tips such as buying food in bulk during sales, minimizing energy usage, and comparing prices before significant purchases.
Beyond these, we’ve gathered advice from financial experts to further shield your finances from inflation. Here are top suggestions from financial professionals who guide their clients in navigating these turbulent economic waters:
1. Re-evaluate and Reframe Your Financial Goals
Susan Hirshman, Director of Wealth Management at Schwab Wealth Advisory, emphasizes the necessity to understand how soaring costs may affect short-term and long-term aspirations. Adjustments might be required to manage expenses without exhausting savings.
For older citizens, heightened healthcare costs might mean curtailing travel, whereas younger individuals might need to reallocate entertainment budgets to accommodate surging childcare or rent prices.
“Being adaptable is essential. Periods of escalating rates demand a reassessment of both discretionary spending and overarching financial objectives,” states Hirshman.
2. Capitalize on Current High Rates
While increased interest rates can make certain loans costlier, securing these rates for savings and investments can offer some inflation relief. Notably, high-yield savings, CDs, and money market accounts now yield much more than they did a year prior.
Hirshman suggests considering Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds for portfolios, noting their benefits and potential limitations. Exploring different investments to capitalize on high rates is also wise.
3. Diversify Investments
Consistent advice from Hirshman: “Tailor a diversified portfolio aligning with your individual risk threshold, investment duration, and overarching objectives.”
She also points out that diversification doesn’t equate to a passive stance; periodic adjustments to holdings may be necessary, especially during inflationary times.
4. Strengthen Emergency Reserves and Venture Beyond
Brandon Goldstein of Prudential Financial underlines the importance of emergency funds, particularly during sustained inflation. Establishing a tiered approach ensures funds aren’t stagnant, or depreciating in value.
Initially, Goldstein suggests understanding your financial flow and setting aside 3-6 months of expenditures in an accessible account. Thereafter, surplus savings can be channelled into CDs, Series I Savings Bonds, or conservative fixed-income funds. Investments in stocks or mutual funds can follow, though consulting a tax expert is crucial.
5. Reconsider Debt Accumulation
Avoid accumulating debt if possible. Higher interest rates, spanning credit cards to mortgages, mean heftier borrowing costs. Before seeking loans, consider alternatives like saving up or maximizing current resources.
Given the high average interest rate for credit card accounts, evading such debt is paramount. If already in debt, transferring balances to a card with a 0% introductory APR might alleviate some financial strain.
An option to consider is the U.S. Bank Visa® Platinum Card. It provides a 0% introductory APR on purchases and balance transfers for the first 18 billing cycles, transitioning to a variable rate post this period.
In an era of unpredictable inflationary trends, proactive financial planning is indispensable. By embracing expert-recommended strategies, individuals can maneuver through these challenging times with confidence and security. From re-evaluating financial objectives to being judicious with borrowing, the road to financial stability, even amidst inflation, is paved with informed decisions. Your financial well-being is within your control; make choices today that fortify your tomorrow.
