Managing finances is key amid rising inflation. Five years ago, $100 could buy more groceries than it does today, thanks to inflation. Inflation causes prices to rise while the value of currency decreases; as a result, the costs of fuel, housing, food, utility bills, and even loan rates increase.
According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 2.9% for the 12 months ending July 2024. The slower CPI increase is a good sign, for it suggests that prices of commodities will be lower. Despite the challenges of inflation, you can manage your finances effectively to survive it. Below are five strategies for managing finances during these economically uncertain times.
5 Strategies for Managing Finances Amid Rising Inflation
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1. Evaluate Your Current Financial Status
Rising inflation translates to spending more to maintain your current lifestyle. That’s why you need to do a financial analysis and ask yourself if you can sustain your household for the next 3-6 months. You will also need to assess your financial obligations, including rent, car loans, mortgages, or unexpected medical expenses that insurance might not fully recover. This evaluation would give you a complete financial picture. In addition, consider using a personal inflation calculator to see the real-time effects of inflation on your finances.
2. Rework Your Budget
If inflation has put a dent in your budget, then it’s time to redo your budget. Identify the must-haves, like food, rent, mortgage, fuel, medical and car loans. Even within the list of basic needs, look for ways to save money like buying food in bulk or sharing a car with your spouse to cut fuel expenses. You’ll also need to trim non-essential spending like impulse shopping, dining out, or upgrading a car still in good condition. The goal is managing finances effectively, ensuring you care for your family while building a 6-month emergency fund.
3. Pay Off High-Interest Debt
Currently, inflation is high, so having debt is hurting you more than you may think, especially when you have high-interest debt like credit card balances or personal loans. Managing finances means avoiding taking on unnecessary debt and focusing on paying down existing high-interest loans. Prioritizing these debts will prevent them from straining your budget in this inflationary economy. If you want something, avoid taking debt for it, save for it, or wait until you can afford it. Reducing your debt load will help you provide for your family without much stress.
4. Invest in Inflation-Proof Projects
If your finances are stable despite the rising inflation, investing in inflation-proof assets can be a smart way to build your financial portfolio. Managing finances at this stage involves choosing investments or assets that are less vulnerable to inflation. A good example would be real estate, which appreciates over time, or stocks in healthcare or consumer staples. It would be good to buy commodities like gold, inflation-protected bonds (TIPS), or dividend-paying stocks.
5. Consider an Adjustable-Rate Mortgage
If you desire to be a new home buyer during this time of high inflation, ensure you get an adjustable-rate mortgage (ARM). Unlike a fixed-rate mortgage, where the interest rate remains the same, an ARM adjusts to market trends. As inflation rises, interest rates may be higher, but the rates will reduce as inflation reduces; this will potentially lower your monthly repayments. This will be the best strategy for managing finances that are related to mortgages.
Conclusion
Managing finances during rising inflation requires a proactive, strategic approach. Evaluating your financial status, reworking your budget, paying off high-interest debt, investing in inflation-proof investments, and considering adjustable-rate mortgages will help you navigate inflation challenges. While there are economic uncertainties, the shared tips will help you protect your finances and ensure you’ve secured your future. Staying disciplined and up-to-date is important at such times.
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