Ok now that you’ve recovered from falling off your chair after reading the tile of this blog, let me explain.
Inflation is one of the biggest challenges in achieving, and maintaining, financial independence. The low inflation we have experienced for decades has made many of us lazy when it comes to spending. Now is the time to put some great habits into place that will reduce your spending now and will help even more when inflation get’s back to historical norms.
Here are some tips:
The days of clipping coupons seems to be a thing of the past. Time to resurrect this time-tested way to save money. Now it’s done electronically. Click here for a great article on coupon apps.
Bargain shop. The meat department is the best place to shop for deals. Supermarkets would rather greatly reduce the price on meat than throw it away. I’ve seen bargains at 50% off. And not to worry, the meat is still good.
Dump the name brands. I am a big name-brand guy however that is changing. You can save 30-50% on certain items by going with the store brand such as Kroger at Ralphs. Just today we saved 30% on peanut butter and couldn’t tell the difference.
Use those credit card miles. If you fly Southwest use their Chase Rewards Card. This year alone I flew two of us to Hawaii roundtrip and flew myself to NY and used my miles. Pretty much all carriers have credit cards they use for miles.
If you shop at Ralphs use their Ralph’s Reward Card. They have a great app that shows you year to date savings. We have saved $500 so far this year. You also get fuel points that you can used at Shell Stations. I’ve saved as much as $.50 per gallon!
This one is real hard for me but try to walk out of restaurants with a doggie bag. I’m the type of person that if something is real good, I’ll clean my plate (thanks mom!). But with portion sizes so big you should have no problem making two meals out of one. Your wallet and belly with thank you!
These are just a few habits to help get you through this time of high inflation that could help your plan when inflation gets back to “normal”.
As the cost of living rises, households worldwide feel the squeeze. Inflation impacts everything from groceries to housing to healthcare, and families struggle to make ends meet as they stretch their budgets to the limit.
Recent statistics show the inflation rate in the United States has risen to its highest level in over four decades. The Consumer Price Index (CPI) has increased by 7% over the past year alone. Inflation is a persistent increase in the prices of goods and services over time, leading to a decline in purchasing power of money. It affects the economy in many ways, including households, as it erodes their buying power, making it difficult to afford basic necessities.
A mature diverse couple shakes hands with a financial advisor.
How Is Inflation Impacting Households Today?
Inflation is affecting families significantly, with prices of goods and services rising rapidly. One area where inflation has a noticeable impact is the cost of groceries. According to the U.S. Department of Agriculture, food prices have increased by 6% in the past year.
Inflation is also impacting the cost of housing. According to the National Association of Home Builders, lumber has increased by more than 167% since April 2020, making building, renting or renovating homes much more expensive.
Other areas where inflation impacts households include transportation, healthcare and energy costs. With gas prices rising, transportation costs are increasing making it more expensive for families to commute to work or travel.
Healthcare costs are also rising, with medical services and prescription drugs becoming more expensive daily. Additionally, the cost of energy, including electricity and natural gas, is increasing impacting household budgets.
How We Got Here and Why?
The United States has experienced an increase in inflation in recent years, fueled by a combination of factors, including:
Supply chain disruptions: The COVID-19 pandemic caused disruptions in supply chains, leading to shortages of goods and raw materials and higher consumer prices.
Government stimulus: The US government has implemented several rounds of stimulus packages in response to the pandemic, flooding the economy with cash and contributing to inflation.
Labor shortages: The pandemic also caused labor shortages in many industries, which has led to increased wages for workers and higher prices for consumers.
Rising energy costs: The cost of energy has increased, with higher prices for gasoline and other commodities, which has increased the cost of goods and services.
Monetary policy:The Federal Reserve has kept interest rates low to stimulate economic growth, contributing to inflation by making it cheaper for consumers and businesses to borrow money.
These factors have all contributed to the current state of inflation in the US. However, inflation is complex and multifaceted; many other factors are also at play.
7 Tips to Help Navigate Inflation
Inflation can be a challenging economic environment for households to navigate. Here are tips from our team of advisors at Trilogy Financial that can help you manage inflationary pressures.
1. Calculate Your Inflation Rate
This measure provides a more accurate reflection of the inflation you are experiencing compared to the general inflation rate reported in the media.
A financial advisor can help calculate your personal inflation rate by analyzing your spending habits and identifying the goods and services that make up your personal consumption basket. This process can involve reviewing bank and credit card statements, examining household bills, and discussing significant lifestyle or spending habits changes to help you track the prices of these items over time and calculate your inflation rate.
2. Create a Cash Management Strategy
A cash management strategy will allow you to preserve your purchasing power and financial stability. A financial advisor can help you create a strategy that aligns with your financial goals and risk tolerance by:
Assessing your current financial situation,
Identifying your short-term and long-term cash needs, and
Recommending appropriate investments that balance liquidity, yield, and risk.
The strategy can involve diversifying cash holdings across different asset classes, using inflation-indexed bonds or money market funds, and considering alternative investments that offer potential inflation protection.
3. Discuss When and How to Use TIPS to Protect Against Inflation
Treasury Inflation-Protected Securities (TIPS) are a type of U.S. government bond indexed to inflation. As inflation rises, the principal and interest payments of TIPS adjust accordingly, providing investors with a hedge against inflation. A financial advisor may recommend TIPS if you want to protect your portfolio against inflationary pressures or maintain your purchasing power over the long term. It could involve assessing your risk tolerance and investment objectives and recommending an appropriate allocation to TIPS within a diversified portfolio.
4. Discuss Alternative ‘Inflation-Hedging' Assets
In addition to TIPS, assets such as commodities, real estate and stocks of companies with pricing power can provide inflation protection. A financial advisor can help you choose the right assets for your portfolio by assessing your investment objectives, risk tolerance and time horizon. As a result, they can recommend an appropriate allocation to inflation-hedging assets that balance return and risk, like commodity funds, real estate investment trusts (REITs) or sector ETFs offering exposure to companies with pricing power.
5. Strategize for How to Avoid ‘Tax Bracket Creep' as Income Rises
Tax bracket creep pushes an individual's income into a higher tax bracket, resulting in a higher tax bill. This move can erode the purchasing power of your income and reduce your savings.
A financial advisor can help you strategize on how to avoid tax bracket creep by considering tax-efficient investment vehicles, such as Roth IRAs, tax-loss harvesting and charitable donations.
6. Review Homeowners and Other Insurance Solutions to Avoid Under Coverage
As the value of assets, goods and services increase due to inflation, the cost of replacing them also rises. A financial advisor can help you review your insurance coverage and ensure they have inflation protection from risks.
Advisors can also educate you on the different types of insurance available and their benefits, such as umbrella insurance, which can provide additional liability coverage in case of a significant lawsuit or accident.
7. Reassess Long-Term Inflation Assumptions for Retirement Projections
Inflation can significantly impact retirement savings and planning because it reduces the purchasing power of money over time. Individuals will need to save more to maintain their living standards in retirement.
A financial advisor can help you reassess your long-term inflation assumptions for retirement projections by analyzing your current savings and investment strategies, projecting future inflation rates, and identifying potential gaps in your retirement plans.
From Us to You: Control Your Financial Future
As inflation continues to affect households, you should take control of your financial situation and work with a financial advisor to develop a plan aligning with your goals, risk tolerance and personal situation.
Trilogy Financial is a financial advisory firm dedicated to helping clients navigate the complex world of personal finance. We offer comprehensive services, including financial planning, investment management, and retirement planning.
If you are concerned about the impact of inflation on your finances, contact us today to schedule a consultation with one of our experienced advisors. We are here to help you take control of your financial situation and navigate through the challenges of inflation.
Female financial advisor meeting and discussing expert inflation protection tips with clients.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual 2. Investing involves risk, including possible loss of principal.
There have been countless news stories about how Millennials are different than previous generations, including their relationship with debt. The principles on debt – the difference between good and bad debt and how to make sure your money works for you – haven’t changed. What has changed are the ways to prepare for retirement and the mountains of student debt that many millennials are struggling under. This large debt slows down their ability to build toward their financial independence, which is a road that many have to pave on their own.
First off, preparing for financial independence has changed. One’s golden years are no longer secured by a pension. More and more people are accepting that preparing for retirement rests solely on their shoulders. The look of retirement has changed as well, with some expecting to continue working because they want to, not because they need to, as well as some embracing the FIRE movement and planning to retire well before 65. For many, the financial landscape that people are planning for has changed.
One of the things that hasn’t changed is what we have historically considered “bad debt”. Credit card debt, high car payments and other depreciating assets, can be harmful to your bottom line. These expenses don’t increase your net worth and often simply distract you from your long-term goals of financial independence. It’s a good idea to keep expenses in this category to a minimum.
Good debt, on the other hand, is money you borrow to ultimately increase your wealth. Historically, student loans for higher education and real estate have fallen under this category as they were seen to be investments that would bring sizable returns in the future. As with any investment, though, you need to critically examine your likely return to make the right decisions. If you are looking at taking student loans for higher education, the goal is for that education to secure a position that will provide you a greater salary. However, if you take out a $100,000 loan to enter a profession that generally generates an annual $40,000 salary, which doesn’t seem to be the best return on your investment. This is the lesson Millennials are laboring under. With $1.5 trillion in outstanding student loan debt[i], Millennials are struggling to make ends meet, let alone build for the future.
Like a series of dominoes, consequences of financial decisions can be far-reaching. Yes, real estate can be a building block to your financial freedom. Yet, many Millennials are delaying buying a home due to their significant outstanding student loan debt[ii]. Additionally, if you’re looking to buy a house that requires a mortgage that leaves you with little funds to contribute to savings or other investments, it may no longer be a good debt option.
In the end, everyone should be looking for ways to invest in their future. You need to be mindful about your money and how it’s working for you. While it’s good to make sure that you’re not throwing your money away, you also want to make sure that your debt is worth the expected rate of return. Everyone has multiple goals, both short-term and long-term. If you plan the right way, you can make sure that the money you have today can work for your dreams for tomorrow.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine what is appropriate for you, consult a qualified professional.
