After years of stable price levels, the United States is about to experience an era of higher inflation. Today’s low-interest rate environment has driven up prices for everything from rents to home insurance and car loans. And with wages rising at a slower pace, Americans are feeling the pinch. This higher-than-normal inflation is due in part to increased global demand as well as federal tax reforms that have reduced corporate income tax rates. For example, the new law has reduced rates from 35 percent to 21 percent, which has led many companies to bring back their cash through dividends and stock repurchases. This in turn has caused further increases in asset value and increased demand for goods and services. In addition, faster wage growth coupled with a tight labor market is causing workers to demand more money for their efforts. That’s good news if you’re looking for a raise but bad news if your earnings are fixed (i.e., not growing). Even more concerning is when you look at how much these higher costs will rise; with annual inflation expected to top 3 percent within the next 12 months, it’s time to start planning for this change.
What is Inflation?
Inflation is a rise in the general level of prices for goods and services. You may have noticed that prices are going up. When this happens, people stop spending. Inflation is driven by many things, like wages, interest rates, and the growth of the economy. There are different levels of inflation. There’s the kind that makes soda cheaper, the kind that can make mortgage payments increase, or the kind that causes an increase in the cost of living for the average person. It’s important to know what level of inflation you’re facing so you can make smart financial decisions.
How to prepare for inflation
If you want to get ahead of the curve, start planning now. This will enable you to be ready for not only the extra financial burden of inflation but also to keep up with future income increases. Here are some tips and tricks to help you prepare for inflation: – Plan for extra costs – It’s important to remember that inflation often comes as a surprise. That’s why it’s important to build up a cash buffer. If you start thinking now about things that will be more expensive in the future, you’ll be better prepared. For example, if you have a young child now but you know that they’ll be going to school in a few years, now is the time to start saving for that. If you can save 5 percent or 10 percent for this anticipated cost, you’ll be better off when your child enters school. Investing – If you’re looking to protect your assets during this time of higher inflation, there are several ways to accomplish this. By investing in low-risk, high-return assets like stocks, bonds, and commodities, you can protect your assets while still earning a good return.
Create a cash buffer
A cash buffer is very simple and sounds too good to be true. It’s really not. All you need to do is start saving a portion of your income now. Let’s say you earn $50,000 per year. If you can save 5 percent or 10 percent of that, you’ll be extremely well off when inflation begins to rise. You don’t have to save a huge amount; $5,000 every year would suffice.
Protect your investments
Another thing you can do to protect yourself against higher inflation is to invest in assets that are expected to increase in value over time. For example, you could invest in gold, which has been proven time and time again to retain its value during inflation. You could also invest in assets that have been proven over time to keep their value even during periods of high inflation. This can be commodities like oil or stocks with a proven track record of profitability in times of high inflation.
If you’re concerned about the upcoming rise in inflation, start building a cash buffer now. While you may not be able to protect yourself against every risk, a small cash buffer will protect you against rising living expenses. Invest in assets that have proven track records for profitability during times of high inflation and are unlikely to lose value during this time. This way, you’ll be able to withstand higher costs while still protecting your assets from inflation.