Are you feeling inflation’s squeeze? A lot of people are. At 8.5 percent, the inflation rate is the highest it has been since 1982, and prices are affected across the board.

Perhaps you remember the financial pain that previous inflation bouts have inflicted. Or maybe you’re younger and this is the first time you’ve had to wrangle with rising costs. Regardless, you’re probably wondering what you can do about inflation.

Here are four steps to help you combat inflation both now and in the future.

1. Re-evaluate Your Budget

If you’re coming up short on essentials like groceries and utilities, take a second look at your budget. It’s our hope that inflation will stabilize soon, but in the meantime, you need to make sure your “must-haves” are covered, which means increasing your budgeted amounts for those categories. This could mean reducing expenditures in other categories, such as memberships or subscriptions.

If you don’t have a budget, consider starting one so that you avoid overspending (so easy to do when inflation is on the rise!). Apps to consider include Mint, Goodbudget, EveryDollar, Personal Capital, and YNAB (You Need a Budget).

2. Limit Your Cash Holdings

Many people feel safer having their money parked in a savings or checking account. But there is another way to look at it: More than likely, that account gives you an interest rate that is far less than the inflation rate. So, essentially, your money is losing value.

Now, there are instances where you need to keep your money liquid. For example, we generally recommend keeping an emergency fund with three to six months’ worth of expenses. Because emergency funds cover, well, emergencies, you need to be able to access the money immediately. Invest the money in equities and you’ll need to sell your stocks before you can use the money, and you’ll face potential taxes for the sale.

So, in this case, a low interest rate is the trade-off for easier accessibility. Otherwise, for medium- to long-term goals, you can consider investment and savings vehicles that offer a higher rate of return. This brings us to step #3.

3. Invest for the Future

Historically, investing has proven an optimal way to offset inflation since the average annual stock market return has been around 10%. Still, you may feel tempted to reduce your savings right now to ensure you cover current expenses. We generally suggest cutting spending in other budget categories before you touch your contributions to investment accounts, such as your 401(k) or IRA.

Fidelity issued a distressing finding in its 2022 State of Retirement Planning report: 45% of younger savers (ages 18 to 35) who quit their jobs last year and cashed out their 401(k)s saw no point in saving for retirement until “things get back to normal.”

No matter your age, please don’t wait for anything to get back to normal. It may never happen. But by saving regularly over a long period, you help build a nest egg that is large enough to give your future self some financial flexibility even in times of high inflation.

Build a diversified portfolio designed for your risk tolerance and return needs. If you’re unsure how to achieve this, consider working with a financial advisor.

4. Consider Whether Inflation “Hedges” Are Appropriate for You

Finally, you might look into whether traditional inflation hedges are appropriate. These may include investing in dividend-paying or commodity companies, buying bonds that adjust their payouts based on the inflation rate, or purchasing real estate as an investment.

Final Thoughts

These four tips can help mitigate the impact of inflation. Depending on whether inflation continues to rise or (finally) drops, you may need to take another look at your budget. Continue to invest for the long term to increase your financial flexibility in retirement, when you will likely be on a fixed income.

If you’re unsure about your financial plan, consider working with an advisor. Our Plantation, FL wealth management firm helps create personalized strategies for each client. We generally advise that you work with a fiduciary financial advisor so you can feel assured that the advice you receive is in your best interest.

Schedule a complimentary consultation with one of our fiduciary, fee-only financial planners to discuss your personal situation.

This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.

Past performance is no guarantee of future results. The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations.