Rising prices for groceries, gas, cars, homes, and everything else have put many American households in difficult financial situations. Inflation hit an all-time high in 2022, and while it’s slowed down in recent months, prices are still higher than they were. For many, rising inflation can feel like a pay cut. Knowing how to adjust during soaring inflation, or even a recession, will help you stay financially stable.
How to Adjust During Soaring Inflation
Here are some tips on how you can maintain financial stability during inflation:
- Make a Budget: If you don’t currently have a personal budget that you follow, it’s time to make one. You can choose to be as detailed with your budget as you like. Keeping a monthly budget is best, and making sure you stick to it is vital. You should also leave room for savings if you can.
- Pay Your Debt: Now is not the time to be racking up debt. During times of inflation, aim to pay off debt on credit cards, mortgages, and personal loans. While avoiding debt payments and saving cash may be tempting, using your extra money to pay off debt will get you further in the long run.
- I Bonds: A bond is one of the safest investments you can make. Backed by the federal government, bonds change with the consumer price index, meaning they’ll keep up with inflation. The interest rate on I bonds is set every May and November, and the May 2022 interest rate was almost 10%.
- Rainy Day Fund: Though it may not be realistic for most people, try keeping a “rainy day fund” with enough money to cover three to six months’ worth of living expenses. Doing this will lower stress when times are tight. If you don’t have a rainy day fund, start working towards building one.
How Does Inflation Affect Personal Wealth?
Inflation affects personal wealth in a variety of ways. Over time, inflation lowers your purchasing power and overall wealth if met with stagnant wages. You can save and invest, but your money won’t afford what it used to. Investing and saving are two of the best ways to prepare for inflation. You may also consider finding ways to grow your income.
Which Assets do Best During Inflation?
When inflation strikes, some assets are better to have than others. These are the assets that typically do best during inflation:
- Real estate income
- Gold
- Treasury inflation-protected securities (another type of bond)
- Stocks
Why Don’t Wages Keep Up With Inflation?
Workers in the United States have been experiencing stagnant wages far before the high inflation rates of 2022. But inflation makes things worse and often leads to decreased wages for employees.
Inflation is a rising cost of goods based on the increased cost of producing them. When it costs more to buy computer chips to manufacture cars, the price of cars goes up. Meanwhile, wages are driven by changes in the labor market, such as participation rates, growth, and technological innovation.
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Plan Your Financial Future With Confidence
Inflation can be scary, especially if you don’t know where to start. But maintaining your wealth during inflation doesn’t have to be complicated.
The William Rogers Company/Sterling Tax Advisors can help with estate planning, trusts, family wealth preservation and protection, and comprehensive tax services. Additionally, we help small to medium-sized businesses in Southern California ascend to new heights.
Schedule a call today and let’s tackle those financial worries at 888-297-3321.
Disclaimer: This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. This is not financial advice. Consult with your financial advisor.