How To Protect Yourself Against Inflation
The amount of money in the world is finite. So, when more money is printed, the value of each unit decreases.
As a result, it becomes harder to buy goods and services with fiat currency. This means that people with savings are at risk of losing their purchasing power if they don’t protect themselves against inflation.
How Much of an Impact Does Inflation Have on Your Daily Life?
The effects of inflation are not always as obvious as they seem. When you are looking at your bank account, your money can be worth more now than it was a few years ago. However, the reality is that the purchasing power of your money has decreased and you are not able to buy as much with your savings.
The average person spends around $1,000 per month on groceries, housing, transportation, and other expenses. This means that if the inflation rate is 2%, then in 10 years the average person will have to spend an extra $500 per month to maintain their current lifestyle.
How to protect yourself from inflation:
1.) Buy Things You Need In Bulk
Every time you walk into the grocery store these days, it seems prices have gone up yet again. If you can afford to buy a little more and have the space at home, the product cost is usually lower when you buy things in bulk.
Buying extra non-perishable items such as canned food, toothpaste, toilet paper, paper towels, etc could be a good idea if you expect prices to continue to rise.
You’re going to use these items anyways, so you might as well stock up if you have the extra money to do so. Especially if prices continue to rise 7%+ per year. Buying items now that you will use later will save you money if prices continue to increase.
2.) Invest In Stocks With Pricing Power
Stocks that have problems raising their prices due to consumers not accepting their higher prices are best to avoid during inflationary periods.
Some of the best stocks to own during inflation would be in companies that can increase their prices without decreasing demand.
These typically include companies that produce commodities (such as oil companies or agricultural companies) or companies that are so ingrained in our society that people would feel lost without them.
3.) Ask For A Raise or “Job Hop” To Stay Ahead Of Inflation
US wages and salaries have seen a record 4.7% increase in 2021. The bad news? Inflation reached 7% over the same period. Meaning inflation gave the average worker a 2.3% pay cut last year.
It’s not always easy to ask your manager for a raise, but doing it the right way can make it easier. Managers across the board are aware of what is going on. They will likely not want to lose you, given how difficult it is to find employees in this current market.
Your best bet is to come to the negotiation table with your homework. It’s worth mentioning the cost of living increases, similar positions that you find online paying more, and highlighting your accomplishments and responsibilities. If they hesitate to give you a raise based on what you present, you might be better off working for another company.
Job hopping tends to yield the best potential for a raise. Depending on your work, many employees get an 8-10% pay raise by joining another company.
4.) Invest In Real Estate
Real estate is considered another approach to protect yourself against inflation. Renting during inflationary periods leaves you more vulnerable to rent increases, as prices across the economy increase.
Renters across the United States are already facing sharp rent increases, averaging up to 40% in some cities.
Although the real estate market could get hit hard if the federal reserve increases interest rates, real estate has always been a solid long-term investment.
If you decide to buy a home, make sure it’s something you can afford to own and make sure you are comfortable with the monthly payments for the years to come.
5.) Invest In Collectibles
Collectibles can also serve as a hedge against inflation. Gold/Silver, rare coins, exclusive trading cards, luxury watches, and even antique rings tend to do well during inflationary times.
Collectibles can be any items worth far more than their original price and are also considered alternative investments.
The value of collectibles is typically based on emotional factors, which are always powerful. Due to collectibles' supply/demand nature, when the money supply increases, and with that inflation, collectibles tend to increase as well to adjust.
6.) Cut Unnecessary Expenses
You can try to outmaneuver inflation by cutting out unnecessary expenses. More than half of Canadians reduced their spending on restaurants and dining in 2021, and 48% spent less on takeout and delivery. Consider reviewing your monthly subscriptions for apps and streaming services as well. Most subscriptions have a relatively low monthly fee, but these add up. You can also get creative with your purchases by opting for less expensive store-brand foods and shopping at bulk stores.
How to Survive Inflation by Spending Money
It may seem counterintuitive, but spending your money is one way to survive inflation. I’m not talking about blowing your money, however. One tactic you can use is to invest your money into tangible goods that you will need over the next months or even years.
Spending money now is like a hedge against inflation. You’re paying today’s prices for tomorrow’s goods. A few examples of things to invest in are:
Non-perishable food
Electronics you need for work or school
Extra cords and components for your electronics
Tools
Personal hygiene items
Paper goods
Office supplies
Children’s clothing and shoes, 1-2 sizes up
Socks
Underwear
Automotive fluids and parts you expect to need
Ammo
By purchasing these right now, you’ll pay far less than buying them as you need them in the future. And that’s if you can get these items at all
.“Sell your dollars” for things that can’t be printed
At the end of the day, the best way to protect yourself from inflation is to essentially “sell your dollars” for things that can’t be printed. Especially during times of high inflation. Predicting how long inflation will last is difficult to do.
How Do You Plan to Survive Inflation?
Have you figured out a strategy to deal with the inflation attacking all sectors of the economy? Do you agree or disagree with the suggestions above? Let’s discuss it in the comments.