• Fri. Sep 22nd, 2023

4 Ways to Prepare Your Money for Months or Years of High Inflation

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When it comes to the personal finance space, inflation is on many people’s minds. That isn’t lost on financial planner Anjali Jariwala. 

“When inflation first started at like the 7% or 8% that we’re seeing now, a lot of us thought it was temporary because we had so much stimulus money, things were starting to open back up, and a lot of people were out spending more,” she told Insider. “So that drove up supply and put pressure on inflation.”

Unfortunately, Jariwala said, experts agree that it seems much more likely now that inflation is here to stay for the foreseeable future.

“The Fed is going to try to combat inflation with interest rates, hikes, etc. — but we don’t actually know what’s going to happen,” she said. 

So what can the average person do to prepare for high inflation and ensure they have a bright financial future? Jariwala suggests doing the following four things to stay afloat during uncertain times.

1. Adjust your day-to-day spending habits

Jariwala said that saving enough money is really important right now because everything costs more and prices are only going to rise further. The best way to do this is by making adjustments to your day-to-day spending and trying to cut back where you can. 

She said that by reducing spending, you’ll have “a bit more cushion in your cash, which makes it a little easier and less stressful to kind of manage on a monthly basis.”

There are many ways to spend less, but some ways that other people have found success include eating out less, cancelling unnecessary subscriptions, and trying “no spend” days, or weeks.

2. Fatten your emergency fund

Jariwala said that when the COVID-19 pandemic first began, she told her clients: “Cash is king.”

“I think it’s a little bit of a similar sentiment right now because we don’t know exactly what’s going to happen,” said Jariwala. 

Having an emergency fund is important even in the best of times because personal disasters can strike at unexpected moments for anyone. 

Now, during a time of high inflation, large-scale international conflict, and volatile markets, it’s more important than ever to make sure you have enough set aside for rainy days.

There are many ways to save more; two popular ones include paying yourself first and automating your savings.

3. Look for cheaper and rent-stabilized housing

Home values and rents are on the rise everywhere, and some areas are being hit harder than others. Jariwala said that in her home state of California, rent in certain markets has increased suddenly by anywhere between 30% and 50%.

Because of this, she strongly recommends that people start prioritizing units that are rent-stabilized in their search, which will make your year-to-year housing costs much more manageable over time.

Jariwala also cited the boom in work-from-home setups as a perfect opportunity to leave expensive housing markets for more affordable ones.

4. Readjust your retirement calculations

If you’re thinking a little more long-term and are wondering how inflation might affect your retirement plans, Jariwala said that the most important thing to look at is your current spending levels and how much you’ll need to afford the lifestyle you want in retirement. 

“When I do retirement planning [with clients], the way I do it is on a cash-flow basis,” said Jariwala. “Since it’s cash-based, inflation has an impact on that because inflation is significantly higher.”

She said that when she makes calculations for her clients about how much they’ll need in retirement, she uses a 2.5% inflation rate adjustment to determine exactly how much it is that they’ll probably need. 

“I have to think about whether 2.5% is still a good inflation adjustment to use for the foreseeable future,” she said. “I don’t anticipate inflation to be at these levels forever, but I don’t know how long it’s going to be.”

Adjusting your calculations for inflation may require you to save more on a monthly basis, or push retirement back a few years. But knowing what you need to do ahead of time can set you up for a smoother retirement in an uncertain future.

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