MONEY

13 Tips For Dealing With Rising Inflation

While consumers can’t control an increase in prices, there are some things they can do to mitigate the impact on their wallets and budgets. Here are some things financial advisers, academics and other experts say.

What’s your inflation rate?

Where you’re spending your money can tell you a lot about how you’re actually being impacted by inflation, and where you should focus on cutting back.

Be aware of shrinkflation

Companies will slowly “shrink” the contents of the packages and goods you buy while charging you the same price. This means a price hike for you.

Try to stick with generic brands because those tend to be the last to shrink. Also, pay attention to the unit price of the product.

Buy the car you’re leasing

If you have a vehicle lease expiring soon, your vehicle’s lease-end price was set when your lease began, prior to the current inflation. 

The residual value is the price for which you can buy your vehicle’s remaining value from the manufacturer. You’ll be getting an almost-new vehicle for an inflation-free price.

Seek a higher return on happiness

Take a moment and think about what you’re spending money on and why, then stop spending money on the unnecessary things that don’t bring you joy.

If you stop spending money on something, by definition, you are no longer impacted by inflation in that area.

Ask for a raise

The salary increases one normally gets are likely to be below the rate of inflation, so it is important to ask for higher raises.

Without an increase in salary that matches the rate of inflation, you are losing purchasing power.

Time your expected purchases

Consumers are often advised to have cash and other liquidity available for unexpected expenses. There is another use for that cash on hand: making expected purchases on sale and ahead of time.

While this only works for nonperishables, there is real value to be reaped by buying goods when the price is right and in quantities that make sense.

Don’t add explicit inflation protection

Adding inflation protection to your portfolio now is like buying homeowner’s insurance while your roof is on fire. While there’s nothing wrong with maintaining a long-term allocation to Treasury inflation-protected securities (TIPS) for diversification, tactically adding them as a hedge may not have the intended effect. 

Control your lifestyle creep

Inflation can be an opportunity to try to cut down on lifestyle creep. One way households can do this is to keep their budget flat despite rising costs. For instance, if your expenses came out to $5,000 a month in 2021, try to get by on $5,000 a month in 2022.

Account for shadow inflation

Do you remember when your restaurants gave you free bread and butter? With the cost of goods rising rapidly, along with the current labor shortage, many of the services we have grown accustomed to are no longer included without an extra fee.

Buy inflation-indexed stocks

Investors should purchase stocks from established companies, such as supermarkets, whose revenues are indexed to the inflation rate. Inflation is a basket, and the best thing correlated with the change in the price of the basket is exactly the basket.

Food is sold in supermarkets and, therefore, the inflation rate of food is highly correlated with the revenues of those companies. 

Watch for falling prices

In certain scenarios it is possible to selectively capitalize on the current high inflation environment. Many consumers will need to cut spending on discretionary items, so a lack of demand may cause the prices of various nonessential goods to decrease. This can present a unique buying opportunity.

Invest in alternative energy

Investors may want to consider alternative-energy stocks as an inflation hedge. With the recent spike in energy and food prices being driven by Russia’s war in Ukraine, nations are increasingly seeking to limit their dependence on foreign fossil fuels and unstable supply chains. 

Better insulate your home

One of the best investments for a return on your dollar is to better insulate your home. This is particularly important given the current higher costs of fuel.

The upgrade will eventually pay for itself, and you will have lower heating and cooling bills that will outlast this inflationary period.

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Produced by Siemond Chan
Photos: iStock

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