If you’ve been in a store lately or visited your local gas pump, you’ve probably noticed some price fluctuations – up and up and up. Every visit, it seems.
Inflation is here, and it doesn’t seem to be going anywhere. So, we all have to figure out how to fight inflation by deciding what to do when our hard-earned dollar seems to get us less and less.
Before we get there though, while we still have a few weeks left in 2021, another plug for us to HELP you get ahead of the game and make proactive moves to reduce your tax burden.
After 12/31, the vast majority of our options wipe off the table, and we are reduced to doing “after the fact” clean-up (which, to be frank, we’re still pretty great at).
But if this is something that you want to discuss … we’re right here: waterbury-cpa.com/schedule/
Now to making your dollars work harder for you…
Emelia Mensa , CPA,’s Strategies for Fighting Inflation
“Price is what you pay. Value is what you get.” – Warren Buffett
The federal government likes to see an inflation rate of about 2%. But hey … who wouldn’t right about now? Because the actual rate is just north of 6% – socking the average American household for an extra $175 a month, or so (and no, wages have not kept up).
The U.S. Bureau of Labor Statistics says that inflation accelerated last March through September and is the worst year-over-year inflation rate in 30 years.
Inflation can flare up for many reasons. Some right now include supply and demand: Normally, you demand and they supply, but shipping snarls, the pandemic, and a shortage of labor are making getting stuff to you harder – and costlier.
Let’s hope inflation doesn’t go much higher. (We can hope, can’t we?) If you’d like to do something more useful than hope, here are some strategies any person can utilize for fighting inflation.
Good first moves
Let’s start with the good news. Believe it or not, inflation and the shortages partially causing it aren’t all bad news.
If you’re selling a car right now, for instance, you can probably get a great price because of both inflation and a shortage of computer chips used in auto making. If you’re looking for a raise at work, you might get more now because of inflation and a huge shortage of labor.
Other than that, it’s all uphill, so to speak. Here are some countermoves:
Fighting Inflation Strategy #1: Watch that budget: Seems obvious, but trust me – You can’t pay too much attention to your spending right now.
Look around to see what’s going up fastest. How about gasoline, for one – up about a buck a gallon just about everywhere from a year ago. Your move? Drive less if you can and if you can’t drive less, budget a little more cash for the tank.
Sometimes dealing with inflation is just adjusting temporarily to stuff you can’t change.
Fighting Inflation Strategy #2: Take charge of your debt: If you’ve got debt now, look at the bright side: With the dollar being worth less, you’re not giving up as much buying power when you pay off old debt. Just try to avoid new debt.
Also, inflation tends to drive up interest rates, which means you’ll pay more in the long run for money you borrow today.
Fighting Inflation Strategy #3: Think differently about savings: It’s pretty tough to find a savings account that pays any interest these days, let alone enough to keep up with these rising prices. Sorry to say, you’ve got little choice but to put your money into some investment. Otherwise, you’re taking a hit to the tune of that 6% we talked about.
Before you do invest, though, sock away an emergency fund of a few months’ expenses in a money market account or, if you can find one (usually online), a savings account that pays at least a little interest. This move isn’t for growth but just to keep you liquid in case of a rainy day.
Fighting Inflation Strategy #4: Keep your income rising, too: Prices don’t have to be the only thing going up. Ever thought about a gig job? Dreamed of selling something on the side for extra cash? Renting out that spare room? Now might be the time. And don’t forget what we said before about raises – you might have more leverage now than you think.
Going to market
Just a word about investments. A lot of the safest ones – most bonds, let’s say, or certificates of deposit – simply don’t return enough to keep up with inflation right now.
Some people try cryptocurrency, of course, which has splashy big returns – and sometimes splashy big failures. Ditto that hot stock tip your cousin’s been whispering about.
About the safest way to dance with Wall Street is through exchange-traded funds or mutual funds; these funds are generally reliable and tend to make money more in line with today’s inflation. These are baskets of various stocks, so you won’t take a bath if one company turns out to be a flash in the pan or some CEO decides to scoot to Mexico with the company coffers.
The details are many many many. Check with us if you need advice to get started.
You don’t have to feel helpless in the face of inflation. We’re with you in this. Give us a buzz if we can help.
In your year-end corner,
Emelia Mensa EA, CPA