Briefing

How to protect your money from inflation

Experts suggest we may have reached peak inflation. But prices are still high. Here's how to protect your wallet.

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The rate of inflation has slowed a bit in recent months, and there are even indications that it has topped out. "Peak inflation is probably behind us," Megan Greene, chief economist at Kroll Global, said on CNBC's Squawk Box. Still, it's unlikely high prices are going anywhere anytime soon. As Federal Reserve chairman Jerome Powell said in early November: "We have a ways to go."

And it seems Americans agree. According to the most recent Quarterly Market Perceptions Study from Allianz Life, 80 percent of Americans are worried that rising inflation will continue to negatively affect their purchasing power in the coming six months. Over half of respondents said inflation had forced them to limit the amount of money they're putting away for retirement, and another 43 percent reported dipping into their retirement pot for some extra funds.

There's a better way to deal with inflation than derailing your financial future. Here are some tips for protecting your money while high prices linger.

Delay big purchases

According to Kiplinger, a "good way to keep your finances in check during times of inflation is to delay major purchases." Not only will this help you avoid taking on debt, you'll also avoid overpaying for a big-ticket item while prices are high. 

If a purchase isn't a necessity, you might be better off waiting for prices to come down. CNBC reported that the price of used cars and trucks, which were up nearly 32 percent year over year as of November 2022, are already "starting to retreat."

Keep looking toward the future

When inflation is squeezing you financially, it might be tempting to focus on the present and forgo future financial planning. But it's critical to continue saving for retirement and other long-term goals. 

According to the National Foundation for Credit Counseling (NFCC), "long-term investments help your money increase in value, and can even outweigh the effects of inflation." The NFCC notes that while the rate of inflation historically hovers around 3 percent, 401(k) plans typically earn between 3 percent and 8 percent annually.

Consider meeting with a financial adviser

While it might seem counterintuitive to worry about investing when prices are skyrocketing, there are ways to strategically invest to beat inflation. A financial adviser can help you solidify your plan. Specifically, Kiplinger advises that you "will want to examine how your investments can help maintain your purchasing power over time and discuss the asset mix in your portfolio."

Find ways to cut costs

When prices go up, your budget should shift accordingly. Not sure where to start? Here are some ideas:

  • Ditch subscriptions or streaming services you're not using, Forbes says
  • Shop smarter at the grocery store by creating a list and choosing cheaper foods, suggests Experian
  • See if you can lower the cost of your car insurance
  • Limit unnecessary driving to save on gas
  • Explore potential savings on energy costs with an energy audit
  • Look for ways to reduce interest on debts you're paying off

See if you can increase your income

According to Forbes, "[o]ne of the biggest problems with inflation and higher prices is that incomes don't rise accordingly." If you're feeling strapped for cash, you might consider turning your attention to ways you can increase your income to make budgeting amid inflation less of a stretch. Some possibilities include:

  • Asking for a raise
  • Switching to a higher-paying job
  • Taking on a side hustle
  • Selling or renting out stuff you're not using

Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She has previously served as the managing editor for investing and savings content at LendingTree, an editor at SmartAsset and a staff writer for The Week. This article is in part based on information first published on The Week's sister site, Kiplinger.com

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