Inflation is Surging! Ideas to Protect Against it Personally and Professionally

I’m sure you are already feeling the effects of the rising cost of goods and services you buy daily. Everything from groceries to fuel is currently surging in price. Fuel for example is up almost 50 percent. You are not alone. Businesses and individuals are all struggling to keep cash flow in the positive. We will go over some things you can do to help during a spike in inflation.

What is inflation?

Inflation is the term used when prices for a wide range of products or goods go up over a specific length of time. Looking at it another way, inflation is the overall decline in the value of money, since the more prices go up, the less each dollar is worth. Back in 1988, a dollar could buy you four postage stamps; today, it gets you fewer than two.

Not all inflation is bad. In fact, some inflation can be a sign of a healthy, growing economy. When people have more money to spend, demand for products goes up, prices go up and, in turn, salaries go up.

The Federal Reserve, whose job it is to keep inflation under control, aims to keep the average inflation rate around two percent by managing the supply of money in the economy.

What is causing inflation to rise so QUICKLY and what it means for you

Many economists predict the current inflation rate will continue to rise well into 2022. The White House and the Federal Reserve have both addressed our current inflationary spike as a “temporary” byproduct of the pandemic.

The good news is that this transitory inflation is expected to end. The question is how long it will take to fix our supply chain issues. With a limited labor force, getting our supply of goods moving at pre-pandemic levels may not be as easy as some think.

Economists expect that the Federal Reserve will try to mitigate the pace of inflation by tightening monetary policy through cutting back on emergency stimulus and higher interest rates.

Tips and Practices to help deal with inflation spikes

Do your best to keep your income growing at least as quickly as your expenses. If you’re working, your salary may rise on its own or you can negotiate it higher. If you’re a business owner, adjust your cost of service to keep up with your increased expenses. Otherwise, adjust your investments so they’ll bring in enough extra money to make up for rising prices.

Since some prices go up more quickly than others, keep an eye on the cost of specific items in your budget. For instance, if your supply prices are rising especially quickly, you can make up for it by buying certain items in bulk to help get a discount. If that’s not enough, you can adjust your budget, putting more money toward supplies and cutting back in other areas.

If you’re currently planning a major purchase, such as a new home, make it as soon as you can afford it. With increasing interest rates, there is no better time to buy or refinance then right now. The sooner you pull the trigger on the purchase, the less you’ll pay.

Invest your cash

During periods of rising inflation, sitting on your cash, rather than investing it, means you’re losing money. In other words, the money in your bank account today buys less as the prices of goods and services rise. Investing in risk assets, including stocks, to generate enough investment returns that offset inflation.

Another good hedge against inflation is investing in Treasury Inflation-Protected Securities, or TIPS. The principal of a TIPS, which is a Treasury bond, increases with inflation; when the bond matures, the investor is paid either the adjusted or original principal, whichever is greater.

In times like these, it’s common for people to put as much money in savings as possible to weather the storm. But to survive high inflation you must do the opposite. If you have too much money in a bank account earning next to nothing, there’s no way you’re going to keep up with inflation.

It might also be wise to invest in index funds like the S&P 500, which are good at keeping pace with inflation.

Invest in yourself

By far the best investment you can make to be prepared for an uncertain financial future is an investment in yourself—one that will increase your future earning power.

This investment begins with quality education and continues with keeping skills up-to-date and learning new skills that will match those most needed in the not-too-distant future. Being able to stay on top of a business’s changing needs may not only help to inflation-proof your salary but also recession-proof your career.

Final Thoughts

Inflation isn’t all good or all bad. It drives up prices and reduces the purchasing power of your savings, but it also drives up wages and typically boosts economic growth. That’s good for investors and for the economy as a whole.

However, that doesn’t mean inflation is both good and bad for everyone. In an inflationary environment, there are winners and losers. Investors, debtors, and wage earners—especially those who are in a good position to negotiate for a higher salary—come out ahead. Savers, creditors, and anyone living on a fixed income usually fall behind.

With inflation, as with most things related to personal finance, planning is the key to coming out ahead in the long run. Work with a professional to help walk you through these uncertain times.

This material is intended for general public use. By providing this content, Park Avenue Securities LLC is not undertaking to provide investment advice or a recommendation for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact a financial representative for guidance and information that is specific to your individual situation. Neither Guardian nor its subsidiaries issue Malpractice or Property & Casualty insurance.