Inflation is the single biggest cost of your money. It eats away at your savings, drains your retirement account and steadily erodes the value of anything that isn’t exempt from it, such as a fixed income or a house. Thanks to inflation, even small fluctuations in its rate can have an outsized impact on your life. If you’re not careful, the cost of living can quickly spiral out of control. But there is good news: Inflation is controllable and there are ways to reduce its impact in your life. Here are five ways you can deal with it.
Understand the Basics of Inflation
Inflation is the general increase in the rate of price inflation, or more colloquially, “the cost of living.” It can affect the entire economy or a single industry. If the overall economy is expanding, but a specific industry is not, then inflation will be a problem in that industry. Even if the overall economy is contracting, there may still be price inflation in some sectors of the economy. How much inflation there is in an economy can vary from year to year, but the average consumer will generally feel the impact.
Set up an automatic savings plan
Automate saving is a great way to get into the habit of regularly setting aside money for the future. Set up an automatic savings plan that adds a small amount to your savings account each month. This allows you to focus on other things in your life, knowing that your money is growing at a steady rate. An automatic savings plan can be as simple as setting up a recurring transfer from your checking account to an investment account. Or, you can have your account transfer a percentage of your earnings automatically. If you have a 401(k) or other type of retirement account, you can also set up an automatic transfer so that you don’t miss a payment. This will ensure that you’re not contributing less than you should, while also ensuring that your savings grow at a steady rate.
Hold on to your wealth
Just as it’s important to understand the basics of inflation, you need to understand the basics of wealth. Wealth is your net worth, which is everything that you own minus everything that you owe. Hold on to your wealth: Make it a priority to regularly review your finances, take good care of your assets and avoid unnecessary expenses.
Avoid paying interest on debt
Most credit cards and secured loans come with a small amount of interest as a fee for borrowing your money. Avoid paying this fee. If you have any debt, immediately stop paying it or reduce the amount you pay each month. It’s important to understand that even if you’re paying off your debt, you’re still contributing to the cost of living.
Protect your fixed income
Inflation erodes the value of any income that isn’t protected against it. This includes your fixed income, like a regular paycheck. Protect your fixed income by setting aside a regular amount each month, particularly if your income is decreasing. This money can go towards paying off any debt or contributing to your savings. It can also be used to pay for a bill or a minor expense that gets swept under the rug when something bigger comes along. This practice can help protect your fixed income from inflation. It can also be used to build up a savings account for the future.
Demand more from your employer
If your employer has a generous 401(k) plan, take full advantage of it. Make minimum contributions to your retirement plan each month, particularly if your income is decreasing. This will protect your savings from inflation. If your employer offers a health insurance plan, take full advantage of it. This protects your fixed income, while also reducing your monthly cost. This practice will protect your fixed income, while also increasing your savings.
Bottom Line
Inflation is a real financial threat, but it can be controlled if you understand the basics of wealth and protect your fixed income. This includes regularly setting aside money in an investment account, while also paying off your debt and protecting your fixed income. These steps will help you deal with inflation in the United States. Whether you live in New York City or in the rural areas of the state, you need to be aware of this threat and take action.
