Ways to save yourself from higher inflation rates – Inflation is one of the most important factors to consider when making financial decisions since it can erode the purchasing power of your investments and reduce the real value of your savings over time.
In the United States, there are several measures of inflation, including the Consumer Price Index (CPI) from the Bureau of Labor Statistics (BLS), which measures changes in prices paid by consumers, and The GDP Deflator, which tracks changes in prices that affect business costs and output decisions at an aggregate level.
Ways to save yourself from higher inflation rates
1. Invest in real estate
Building equity in your home is one of the best ways to invest in real estate. This can be done through a traditional mortgage or by renting out a property you own.
The costs associated with maintaining your home are tax-deductible and can provide a steady income stream if rented out, while also increasing its value over time.
Homeowners who live near their place of employment can also take advantage of commuter benefits that offer an employer contribution to help pay for their transportation costs.
Employer contributions for parking, bus passes, and bike-share programs, among others, can really add up over time. If you’re not ready to buy a house yet but want the potential benefits of owning one without the responsibility of ownership—or commitment—you may consider investing in an apartment building through a Real Estate Investment Trust (REIT).
A REIT owns rental properties; like stocks, they trade on major exchanges and yield dividends like any other stock investment.
If managed properly, they provide regular cash flow and protection against inflation because rents tend to increase every year as inflation takes hold.
Finally, these days many people need two incomes just to get by so some might choose not only have a second job but find another partner as well!
2. Buy gold
Gold is an asset that typically performs well when inflation is high. Gold has also historically acted as a hedge against geopolitical risk, and can be a way to diversify an investment portfolio.
You can buy gold in the form of coins or bars. You can purchase these items from a dealer, or through exchanges such as the New York Mercantile Exchange (NYMEX) or COMEX.
In some cases, you can buy it on the spot market with a spot transaction, which is where you exchange cash for gold right away.
You should take into consideration how much cash you have available and what your timeline looks like before deciding if this option would work for you.
-If you are concerned about potential rate hikes by the Federal Reserve, then buying bonds may be a good idea.
Keep in mind that bonds typically perform poorly during periods of deflation because interest rates are set at nominal levels on long-term investments so they don’t rise with inflation rates.
-You could invest in ETFs or other funds as an alternative investment strategy if you want to hold securities outside of stocks or bonds.
3. Stabilize costs with ETFs
One of the easiest ways to manage inflation is to invest in a basket of exchange-traded funds that can help you stabilize costs and take advantage of rising prices.
ETFs are like mutual funds, but trade on the stock market. They can be bought or sold throughout the day as needed, which makes them especially useful for investors who want to hedge against price fluctuations.
The composition of your ETF is what will determine how it reacts in an environment with changing prices.
4. Stay flexible when it comes to mortgage repayments
When it comes to your mortgage, you want to keep the duration of your loan as low as possible, which means taking out a 30-year fixed rate mortgage instead of a 15-year fixed rate.
The longer you have the loan, the lower your payments will be in relation with what you borrowed.
For example, if you borrow $250,000 over 30 years at 3.5% APR, your monthly payment would be about $1,450 per month for 180 months or about $271,000 in total. If you borrow $250,000 over 15 years at 4.0% APR (which is higher), your monthly payment would be about $2,400 per month for 120 months or about $316,000 in total.
If you’re able to afford the higher payments without sacrificing too much of your income, this strategy may be worth considering.
Consider paying down more expensive debt like credit card bills and car loans before tackling any other debts because those are typically more expensive than mortgages on an annual basis.
The best way to protect yourself from rising prices is by staying ahead financially and managing your spending habits so that when prices go up, you don’t go into debt and start getting into trouble.
5. Create an emergency fund
One of the best ways to prepare for high inflation rates is an emergency fund. This allows you to cover your expenses for three months should you lose your job or have a sudden medical emergency.
Start by setting aside $1,000 and then gradually increase the amount as your income increases. Over time, it’ll be easier to handle any financial emergencies that come up while simultaneously protecting yourself from high prices on necessities like food and gas.
Get a part-time job: If you’re still struggling with student loans, not yet making enough money, or looking for a way to pad your savings account in anticipation of rising inflation rates, take up a side gig.
Picking up two nights per week at the local grocery store will help pay off those loans quicker than if you were just focusing on work full-time; plus there are plenty of people who work their way through college in retail.
6. Diversify investments beyond stocks and bonds
One way of protecting your money from a sudden drop in the value of investments like stocks or bonds is by diversifying your portfolio.
Consider investing in assets that have a low correlation with the financial markets, such as real estate, collectibles, or commodities. Another good strategy is to consider investment vehicles that offer you protection against capital losses.
These include insurance products and derivatives like options or futures contracts. You can also protect your portfolio by taking steps to reduce the risk in each individual asset.
For example, if you invest in stocks, research which sectors are best poised for growth during periods of economic uncertainty and invest more heavily in those areas.
Likewise, choose bonds with short-term maturity dates because interest rates tend to rise when investors are pessimistic about the economy.
7. Review investments regularly
It is important to review your investments from time-to-time. This means looking at the performance of the stocks and funds you have invested in and seeing how they are performing. If you are not satisfied with what you see, it’s possible that a change may need to be made.
For example, if there has been a significant drop in value of an investment, then it may be time to sell and reinvest in something else. The idea is not just about the return on investment but also on risk. You want to minimize downside risk. Find other places for money:
When considering savings for the future or paying for unexpected expenses, look for other places where you can put your money. In many cases, you may find that some of these savings will work out better than expected.
Some people use a rainy day fund as well as invest their money in good interest bearing instruments like certificates of deposit (CDs) or bonds.