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Financial Habits to Develop During Inflation to Stay Ahead

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Inflation is like that uninvited guest who refuses to leave. No matter how much you adjust your budget or tweak your spending, it seems to find a way to creep into your wallet. Prices rise, the cost of living goes up, and before you know it, everything feels more expensive. But instead of letting inflation take over your finances, you need to develop financial habits that can help you stay ahead. After all, surviving during inflation is one thing, but thriving? That’s a whole new game.

In this guide, we’ll cover the essential financial habits you should be building right now to protect your money and keep your finances in top shape, even when inflation is eating away at your purchasing power.

Why Inflation is a Silent Wealth Killer

Inflation, at its core, is the rise in prices over time, reducing your money’s purchasing power. According to the U.S. Bureau of Labor Statistics, inflation hit 3.7% in August 2023, which means everything—from groceries to gas—costs more than it did just a year ago. Over time, this erodes your savings and stretches your budget to the max.

It’s not just the rising costs that are concerning—it’s the fact that wages rarely keep up with inflation. So, unless you take proactive steps to build habits that protect your finances, you’ll find yourself losing more and more ground.

1. Make Budget Adjustments Regularly

If you’re still operating on the same budget you used five years ago, it’s time for a serious upgrade. The first habit you need to develop during inflation is regularly adjusting your budget to reflect current price increases. Prices fluctuate, and so should your spending plan.

Here’s what you can do:

  • Evaluate spending trends: Take a close look at your spending over the past three to six months. If the cost of groceries, gas, or utilities has increased, you’ll need to adjust your budget to accommodate these changes.
  • Reprioritize expenses: Are there any categories where you can cut back? Subscriptions, entertainment, or dining out may need to take a backseat while you focus on covering necessities like housing, transportation, and healthcare.

Pro Tip: Using apps like Mint or YNAB (You Need A Budget) can help you track changes in your spending and update your budget in real-time. By staying on top of your expenses, you won’t be caught off guard by rising costs.

2. Prioritize High-Interest Debt Payoff

Debt can spiral out of control during inflationary times, especially if interest rates are rising alongside prices. One of the best financial habits to adopt is aggressively paying down high-interest debt.

Why? Because as inflation increases, the Federal Reserve may raise interest rates to slow it down. This, in turn, increases the interest rates on credit cards, personal loans, and variable-rate mortgages. According to Bankrate, the average credit card interest rate was a whopping 20.5% in 2023. The faster you pay off this debt, the less interest you’ll pay overall, leaving more room in your budget for necessities.

Pro Tip: Use the debt avalanche method—pay off the highest-interest debt first while making minimum payments on the rest. This saves you the most on interest in the long run.

3. Increase Your Income Streams

If you’re relying on a single paycheck, you’re putting your finances at risk—especially during inflation. Building multiple streams of income is a crucial habit to develop to stay ahead of rising costs.

Here’s how you can increase your income:

  • Freelance or side hustle: The gig economy is booming, with over 36% of the U.S. workforce participating in freelance work. Platforms like Upwork and Fiverr offer opportunities in everything from writing and graphic design to coding and consulting.
  • Ask for a raise: If you’re excelling at your current job, don’t be afraid to ask for a raise that matches inflation. Companies know that retaining top talent during times of inflation is important, and if you don’t ask, you won’t receive.
  • Invest in passive income: Dividend stocks, rental properties, and peer-to-peer lending platforms like LendingClub can provide passive income that helps cushion the blow of rising prices.

Pro Tip: Freelancing doesn’t require a huge commitment. If you can dedicate just five hours a week to a side hustle, you could make an extra few hundred dollars a month—enough to offset some inflationary costs.

4. Build an Emergency Fund That Grows

An emergency fund is always a financial must-have, but during inflation, it’s even more critical. Without one, any unexpected expense—like a medical emergency or car repair—could send you into debt, which becomes more expensive during inflation.

But here’s the key: Your emergency fund needs to grow with inflation.

  • High-Yield Savings Account (HYSA): Don’t let your emergency savings sit in a basic savings account earning almost no interest. Look for an HYSA offering competitive rates (around 4.00%-5.25% in 2023) to help your money keep up with inflation.
  • I Bonds: Series I Bonds, which are tied to inflation, are another safe option. They currently offer about 4.3% interest through TreasuryDirect. They’re limited to $10,000 per person per year, but they’re a solid way to protect your emergency savings.

Pro Tip: Aim to have at least three to six months’ worth of essential expenses saved up in your emergency fund. If you anticipate layoffs or job instability, aim for even more.

5. Reassess and Diversify Your Investments

Inflation can erode the value of your savings if it’s just sitting in cash. Developing the habit of reassessing and diversifying your investments is essential to staying ahead.

Here’s where you should be focusing:

  • Stocks and equities: Historically, stocks have outpaced inflation over the long term. The average return of the S&P 500 is around 10%, although it fluctuates. By investing in a diversified portfolio of index funds or ETFs, you can benefit from long-term growth that typically beats inflation.
  • Real estate: Real estate is another strong hedge against inflation. As property values rise, rental income often increases as well. You don’t have to buy property to invest—REITs (Real Estate Investment Trusts) offer an easy way to invest in real estate without directly purchasing property.
  • Commodities: Investing in commodities like gold and oil can also hedge against inflation. As inflation rises, the price of these goods tends to increase as well. Gold, for example, has held its value during inflationary periods, with prices hovering around $1,900 per ounce in 2023.

Pro Tip: Regularly check in on your investment portfolio and rebalance as needed to ensure you’re adequately protected from inflation. A mix of stocks, bonds, real estate, and commodities is a good starting point.

6. Cut Unnecessary Subscriptions and Discretionary Spending

Inflation is the perfect time to reevaluate your spending habits, especially when it comes to discretionary expenses. Monthly subscriptions, dining out, and impulse buys may not seem like much individually, but they add up—especially when prices are rising across the board.

Here’s how to cut back:

  • Audit your subscriptions: Are you paying for multiple streaming services, a gym membership you rarely use, or subscription boxes you don’t need? It’s time to cut the fluff. Use an app like Rocket Money (formerly Truebill) to track and cancel unused subscriptions.
  • Set spending limits: Give yourself a cap on discretionary spending each month. If eating out is a regular habit, try limiting yourself to one or two nights a week and cooking at home the rest of the time.

Pro Tip: Sometimes, you can renegotiate your subscription rates by simply asking. Call your phone company or internet provider and see if they have any deals or promotional offers. Every bit helps.

7. Stay Educated and Adapt to Economic Changes

Lastly, financial literacy is a powerful habit to develop—especially during inflationary periods. Staying informed about how the economy works, how inflation affects your finances, and what you can do to protect yourself is crucial for staying ahead.

Here’s how to stay informed:

  • Follow trusted financial news: Websites like MarketWatch and Investopedia are great for tracking inflation trends, interest rates, and changes in the market.
  • Consult with a financial advisor: If you’re unsure how to navigate your finances during inflation, a financial advisor can help you make the best decisions for your unique situation. They can offer tailored advice on everything from investing to debt repayment.

Pro Tip: Make it a habit to check in on your financial health regularly. Whether it’s reading articles, attending webinars, or meeting with your advisor, staying educated will help you adapt to changes in the economy before they impact you.

Final Thoughts: Habits for Staying Financially Ahead of Inflation

Inflation might be inevitable, but you don’t have to let it erode your financial health. By developing these smart financial habits—adjusting your budget, paying off high-interest debt, increasing your income, and making strategic investments—you can not only survive during inflation but stay ahead of the game.

Remember, it’s not just about cutting back; it’s about being proactive and disciplined with your money. Inflation might make things more expensive, but with the right financial habits in place, you can protect your wealth and continue building a financially secure future. Check back with 30andRich.com for more tips to handle inflation.