Protect Your Finances from Inflation
The pandemic has had many negative effects. Inflation is one that may stay with us for a while. It can eat into your savings and your plans for the future. However, you can take steps to protect yourself from inflation.
Consider these tips to protect your finances:
- Understand purchasing power. Purchasing power refers to your ability to buy items such as necessities and luxuries. One of the main issues with inflation is that your purchasing power goes down as inflation goes up.
- For example, your $1 could buy an item yesterday, but today you’ll need $5 to buy the same item.
- Unfortunately, interest rates and incomes can’t always keep up with inflation.
- Consider investing in the stock market. Do you have investments in the stock market? Instead of taking them out after every drop, plan a long-term strategy.
- Long-term investments in stocks may protect you from inflation, “The sensible middle ground of investing is a wiser strategy,” says Robert Cavanaugh, Senior Vice President Investments for David Lerner Associates.
- Commodities tend to increase in value during inflation. For example, coffee or grains may survive inflation well on the stock market because they’re commodities.
- Consider real estate investments. Real estate can be a powerful investment tool.
- Although real estate prices can go up during inflation, you have to consider your ability to handle all of the loans and mortgages. Even if you rent out the properties, how will you handle periods without renters?
- Consider investing in your future. You have the power to survive inflation, and you can take steps to deal with it.
- Have you considered investing in your future by going back to school? One positive result of the pandemic is that you may find you have extra time that can be used to upskill and improve your earning power. This can provide a bigger cushion during times of inflation.
- Try to make your income sources grow. If you can make your sources of income increase, then inflation will have a lower impact on you.
- Get rid of debt. As inflation rises, the interest rates on your debts can also rise. If you pay off your debts, then you don’t have to worry about it. However, if you can’t pay off all of your debts, be prepared to make higher payments during times of inflation.
- Consider your Social Security benefits. During periods of inflation, benefits such as Social Security usually can’t keep up with the growing prices. Be prepared for this event. Have some savings that will cover you when prices go up.
Inflation isn’t always easy to predict or avoid. However, you can take action to make it have a smaller impact on your finances. Follow these strategies and protect yourself, your family, and your finances from inflation.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
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