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7 Ways to Save Your Money From Inflation

It’s inflation that is having everyone on edge when it comes to managing their money. The Consumer Price Index (which tracks the prices of groceries, housing, and other necessities) increased 7% between December 2020 and December 2021, the biggest increase in 39 years. 

What should we do about inflation?

The Federal Reserve, the U.S. central bank responsible for monetary policy, says it’s investigating the matter. In addition, it may soon begin to remove some extra pandemic aid it has been providing to the economy, which may slow the rate of price hikes. White House officials assure us they are also working on this issue. Joe Biden met recently with representatives of the meat and oil industries to discuss the issue. To increase competition and decrease prices, the administration will allocate $1 billion of funding to smaller, independent producers of meat and poultry.  

My finances are at risk of inflation. Is it possible to protect them?

You can protect your wallet while politicians figure out how to deal with inflation. Consider these suggestions:

1. Update your budget. Is your spending plan still based on last year when everything was cheaper? It might be time to switch things up. Don’t forget to account for the essentials, including their higher prices. Look for opportunities to cut costs or negotiate for lower prices.

2. Strive to earn more money. In other words, ask for more money. Especially considering the current tough job market. In the current economic climate, employers may be willing to pay to keep talent while so many people quit.

3. Be smart when you shop. If prices are going up, comparison shopping is particularly important. There are apps like GasBuddy that will help you locate the lowest gas prices nearby. You can also use online tools like Basket to search for the most affordable groceries. 

4. Earn rewards. With your credit card, you can get cashback on expenses you are already going to make. When you shop on a card that offers rewards, such as statement credits, travel points, or rewards for every swipe, you will earn points or rewards. Honey and Rakuten are two apps that allow you to earn cashback without accruing a balance.

5. Save only what you need. Cash isn’t your best friend during inflationary periods. Investing gives you the best chance of growing your money towards long-term goals, like buying a house, sending a child to college, or retiring. Stocks offer the greatest potential returns and are therefore most likely to beat inflation. High rewards come with higher risks.

To hedge against inflation, some experts recommend investing in commodities and crypto. Bitcoin is sometimes referred to as “digital gold.” This is because Bitcoin has a finite supply of 21 million units and is not linked to any monetary policy. In other words, nobody can help the economy grow by increasing the supply like U.S. currency can, which can cause inflation. Despite this, alternative assets aren’t a guarantee of beating inflation. It is possible for commodities and digital currencies to fluctuate drastically.

6. Earn more passively. For example, create passive income streams. There’s a possibility that you can rent out a room, a storage space, or even a parking spot – or maybe expensive tools like lawnmowers or snowblowers – for some extra money with little effort.

7. Opt for yield. An account with high-interest rates would be a good choice for your emergency fund and short-term savings. Money in these accounts grows (a little) faster than in a regular savings account or a checking account with low or no interest. As compared to high yield accounts, which can earn around 0.5%, the average savings account pays only 0.06% in interest. Inflation alone cannot be defeated by this figure, but it helps.

For how long will there be inflation?

That’s the big question. The US Fed boss recently dropped the term “transitory” from his vocabulary, which he had been using to describe inflation in the US. According to the latest consensus, inflation is expected to last into most of 2022. Omicron and its derivatives won’t help. 

Your financial situation is affected by inflation in just about every way. The only way you can control inflation is to make sure your budget stays on track – and adjust the budget as necessary.

Updated Jan. 21 to include the most recent inflation data.

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