Secrets to surviving inflation

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Tapping Emergency Reserves

This is, almost without exception, a big, fat, NO.

Raiding your emergency fund simply to maintain the posh lifestyle to which you have become accustomed is an abysmal strategy. Keeping Showtime Anytime may be important, but it’s not likely to meet the definition of a crisis. Remember Steklov’s warning: Nobody picks the day their car engine goes kaput.

Siphoning off a bit of your emergency reserves makes sense only under Cherubini’s strategy: You’re locking in today’s price of a future absolute necessity. Even then, he says, you must plan to replace those funds in a timely fashion.

The same goes for accessing your 401(k) or IRA funds.

“You’re liquidating your future!” Steklov says. “There are ways to protect yourself from inflation: reducing expenses, being more realistic on what you make.”

Paying Debt Down (or Off)

As the Federal Reserve raises interest rates, so do rates on revolving credit. This is among the chief reasons it’s an awful idea to attempt to weather high inflation by putting recurring expenses on a credit card and worrying about them later.

For those carrying balances, your interest rates already are creeping from high to astronomical. The average rate on a new credit card topped 20%, the first time that’s happened since Lending Tree began its tracker in 2018. For more than 50% of consumers who nurse balances from month-to-month, their ongoing interest rate is a tick above 16%.

Paying debt down, or off, is always a good scheme, but never more than now. Ways to achieve the goal include:

  • Debt-consolidation personal loans, which, even now, can be had for rates a half to a third as high as credit card rates.
  • Zero-interest balance-transfer cards.
  • Cash-out home refinance loans.
  • Consulting with a nonprofit credit counseling agency, where you’ll get free, no-obligation advice about the best ways to shore up your household finances.

Revising Investment/Savings Strategies

Among the best ways to adopt the Newsome Maxim — pay yourself first — is by stashing money into your company’s 401(k). If your employer offers a match, invest at least to take full advantage of that.

If your budget is still in the black after meeting the match and your investing horizon is well in the distance, sock away even more, especially while the stock market is well off its historic highs. Historically, the S&P 500 index returns 10% annually; the latest pullback suggests active investors will enjoy substantial gains.

If you have a bundle of cash beyond your emergency fund, cash you don’t need to make your budget work, consider TIPS, or Treasury Inflation-Protected Securities. The principal of these government bonds rises or falls with inflation/deflation, based on the consumer price index.

As an alternative, consider a Series I bond, a federally backed instrument (endorsed by personal financial expert Suze Orman) whose interest rate varies with inflation. Through October, the annualized rate on an I bond is a record 9.62%.

Caveat emptor: You have to hold the bond for at least one year. If you cash out before five years, you lose the previous three months of interest.

Other Strategies and Tactics

  • Have a fresh look at your employer’s benefits guide. You may be missing out on any number of company-subsidized perks, from gym memberships and child care to financial planning and discounts on entertainment, dining out, car buying, and even tuition reimbursement.
  • Shrink your home’s energy bill. Find out whether your state or electric company offers free energy audits. Easily cured inefficiencies might be identified, and/or you may qualify for state-funded programs offering rebates or tax credits for installing more efficient appliances. Meanwhile, turn off lights. Readjust the thermostat a degree or two (warmer in the summer, cooler in the winter).
  • Hold off on home improvements until materials prices cool. Focus only on critical repairs or upgrades.
  • With airlines and lodging prices surging, consider a summer staycation enhanced by new sporting goods, camping gear, or other recreational equipment, the prices of which have held fairly steady.

“So much of what’s important in looking at an inflationary environment is the same as always,” Cherubini says. “It’s making sure you know where your money is going. It’s making sure you’re not wasting money, you have a plan moving forward, and you have a plan for the unexpected things. … You just have to understand the value of money is rapidly changing.”

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