You could have created the most responsible household budget and have a pantry full of essentials but if inflation hits, it could still put you in a financial crunch. You’re still earning the same amount of money but your food, gas, and utility bills are increasing.
Read ahead to understand what inflation is, the current inflation trend, and 8 tips to fight inflation in 2022.
What is inflation?
In simple terms, inflation is the increase over time in prices of goods and services. While inflation usually carries a negative connotation, it is a natural phenomena. Typically, the inflation rate in the United States ranges from 1 to 3% per year.
However, when inflation rises above 3%, it can get dangerous as the prices of goods increase faster than wages.
What is the inflation trend in 2022?
In March 2022, the Consumer Price Index reported an increase of 8.5% in prices of goods and services in the United States compared to last year. This is the fastest increase in 12 months since 1981, and is a serious concern for consumers.
While consumers can do little individually to bring down inflation, they can certainly take measures to defend their wallet against the increasing prices. Let’s discuss 8 tips to help you fight inflation in 2022.
8 tips to fight inflation in 2022
Start an emergency fund
An emergency fund is always a responsible idea to protect against any financial setbacks. While an emergency fund won’t directly protect you against inflation, it will give you a backup in case the price increases have an extremely detrimental impact on your income.
You don’t necessarily require copious amounts of money to start building an emergency fund. Even setting aside a few dollars every week can build up to a sizable amount over time. So make sure you use these tips here to start saving today.
Find out your personal inflation rate
The Consumer Price Index reports the overall inflation rate for all goods and services, but not all consumers get affected by the inflation rate equally. Your personal inflation rate depends on what goods and services you consume and how hard they are hit by inflation.
You can use online calculators to calculate your personal inflation rate and use it to find alternatives for goods and services that are impacting your finances the most.
Review your budget
In addition to finding alternatives to goods and services that are hit the hardest by inflation, it is a good idea to holistically review your household budget.
Inflation has a significant impact on fuel and groceries, so consider how to adjust your budget to spend less on these categories and eliminate unimportant items to make way for essential costs. Ask for a raise or find a higher paying job
Inflation causes living expenses to rise, and asking for a raise may help you deal with increased expenses. Infact, many companies offer yearly wage increases to counter inflation.
However, since inflation in 2022 is higher than the normal yearly increase in the prices of goods and services, consider asking your employer for an additional increase in your wage.
If your employer does not agree to a raise, you might want to look for another job as the job market is hot for new employees. Job openings are nearing record highs and employers are quickly raising wages, giving you the opportunity to take up a job that pays better.
Invest in a high-interest rate I-bonds
I-bonds pay interest based on a fixed rate plus the rate of inflation, therefore protecting the purchasing power of your money. I-bonds are a great idea if you plan to buy something in the next two or three years as they lock up your savings for at least a year.
Invest in small cap stocks
The logic behind investing in small cap stocks during inflation is simple: smaller companies pass on price increases to customers more easily, allowing investors to get higher returns on their investments.
So consider investing in a few small cap stocks this year.
Think about real estate
In the past 50 years, there have been three bouts of inflation in the United States that have been more severe than inflation in 2022. In each of these periods, only Real Estate Investment Trusts have yielded returns greater than inflation.
That’s because real estate values and rents tend to increase during periods of inflation, giving these trusts a steady cash flow. So investing in real estate is a safe way to protect your money and increase your wealth during inflation.
Diversify your portfolio
Perhaps the most important measure to fight against inflation in 2022 is diversifying your investment portfolio. Diversification entails spreading your investments across different industries, companies, and asset classes to reduce risk and ensure the certainty of high-quality returns.
This is because different investment categories are impacted by inflation in different measures. You may want to shift some weight towards real estate, small cap stocks, and commodities.
How to Fight inflation: 8 Tips for 2022 is a feature post
