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Stay Focused and Change Some Money Attitudes During Inflation

Inflation decreases purchasing power by driving up prices. You might consider altering your finances during times of high inflation. Investors and savers should review their plans. Higher interest rates cascade down to consumer products. 

But since higher interest rates would also apply to deposit accounts, banks might start offering better interest rates on certificates of deposit, savings accounts, and checking accounts. 

Here are some ideas for staying focused on your finances and changing some money attitudes during inflation.

Evaluate your finances

These days, it’s common to find yourself with little money. According to a recent New York Times/Momentive survey, 40 percent of adults claim that their family’s financial situation has worsened since the outbreak of the pandemic. Modify your financial plan if your spending limit isn’t lasting as long as it once did or if you’re getting uneasy about your investment portfolio.

Know your financial position

Calculating your inflation rate might help you determine where you stand with inflation before you start changing your budget. For instance, if you don’t eat much, you’ve avoided buying some products with the most significant price rises. If you frequently order takeout or go out to eat, you’re paying more for each meal  than you were a year ago.

Get your spending in order according to your budget

Subtract your current monthly spending from your monthly spending last year to find your inflation rate. Divide that difference by your previous year’s expenditures. Your inflation rate is 19 percent if your current monthly spending is $2,500 now and was $2,100 a year ago. Your inflation rate might inspire you to eliminate irrational expenses from your budget.

Reduce unnecessary costs

Every financial product has costs, from bank accounts to prepaid debit cards to credit cards. Though some fees cannot be avoided, you can reduce your expenditure on others. For instance, credit cards might have many costs, such as overdraft fees, returned payment fees, and late fees. 

Check the small print in your user agreement, the amount you’re charging to your card, and the due dates for your bills to avoid these fees.

Remember that if you close credit accounts, your credit score may decrease. 

But if you frequently use a debit card connected to your checking account, you could still be charged fees. Consider transferring to an online bank or credit union if your checking account consistently charges you hefty fees. Some banks will even levy monthly minimum balance fees on checking accounts, which means you’ll be penalized if the account doesn’t have a certain minimum level.

 Maintain your savings

You might be tempted to reduce your savings during periods of substantial inflation. However, doing so can result in money being lost. To stop inflation, the Federal Reserve may raise interest rates as many as six times this year. 

Although interest rates on savings accounts may not instantly increase, banks will eventually feel forced to do so. If you start saving now, you’ll have more money to take advantage of compounding when interest rates rise. 

It is vital to assess your savings goals now if you have already made contributions. Can you extend your savings objectives by a few months if rising prices leave you less money to spend each month? Remember that every financial journey is a marathon, not a sprint; now is your time to pick up the pace.

Deal with your debt wisely

Due to inflation, many customers face financial difficulties despite rising prices for essential goods. Americans maintain an average credit card balance of $6,000, according to a Nerdwallet survey. Thus to sustain financial sanity, you need to manage your debt. 

You can consider debt management plans that might help you avoid paying credit cards thousands of dollars in interest. Debt management does not apply to school loans or mortgages; these plans address only unsecured debts like credit cards and personal loan balances.  

See whether your lender will work with you by calling them, and then chat with a counselor to compare their rates. The National Foundation for Credit Counseling’s accredited nonprofit credit counseling organizations should be used by consumers. 

Other debt relief options include debt consolidation, settlement, balance transfer, etc. To consolidate their high-interest credit cards, consumers take out new loans.

The interest rates are dependent on your credit score. 

You need to enroll in a settlement program where your debt gets reduced through negotiation. While you withhold payments in the hopes that a settlement can be reached, your credit could suffer. 

Think about the future (i.e., retirement)

At historical inflation rates, everything you buy today will cost 2.7 times more in 30 years. You must invest in a resource that can withstand this degree of inflation if you want to keep your purchasing power. Historically, the shares of well-managed, dividend-growing corporations have beaten inflation by 2 to 4 percent yearly.

Consider both active and passive income

Have assets that help you hedge against inflation, such as precious metals (gold and silver). Raise active and passive income faster than the inflation rate. Estimate that the actual inflation rate historically has been around 5 percent annually, so to keep up with it, you need at least that much more money each year.

Maintain your investment

Investors are becoming uneasy due to the Federal Reserve raising rates to control inflation. You might be tempted to change your investment portfolio during the volatility, but you shouldn’t. Maintaining adherence to your long-term plan is still the basic investing norm. 

In these uncertain times, you probably want to keep your stock investments, particularly in your retirement savings.

Although 401(k) loans are possible if you require money immediately, borrowing money now means you’ll miss out on compound interest for the future.

The Bottom Line

The government will monitor inflation data and adjust the federal rate as necessary. Other elements, such as modifications to international supply chains that can release inventories and result in reduced product costs, could moderate inflation in the upcoming year. 

Whether inflation increases or decreases, you should always be focused on your finances to maximize your savings for a better financial future.

Source: Centsai, Accessed 9/20/22

This article’s view is the author’s and does not reflect the opinion of any member of CentSai’s management. The author is not being paid by any financial services company nor has been paid to promote any individual product or service. The author is not a financial advisor or a broker-dealer. The content above is education-only and any reader is encouraged to seek advice from a registered financial advisor before taking any action.


DISCLOSURE: Investment advisory services are offered through Gretchen Stangier, Inc. DBA Stangier Wealth Management (“Stangier Wealth Management”), an investment advisor registered with the U.S. Securities and Exchange Commission. Stangier Wealth Management only offers investment advisory services where it is appropriately registered or exempt from registration and only after clients have entered into an investment advisory agreement confirming the terms of engagement and have been provided copies of the firm’s ADV Part 2A brochure and Part 3 documents.

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