If you are worried about the current economic state of the world and wondering how to survive inflation, you are in the right place to learn.
Today, we will discuss ten ways you can survive inflation in 2022, including things like budgeting, savings, investments, and tax efficiencies, to teach you how to prepare for inflation.
Currently, the inflation rate in the US has gone down from 8.6% in July 2022 to a 7.7% as of October 2022, according to the Federal Reserve System and statistics released by The Bureau of Labor Statistics (BLS). Here are ten ways to help you learn how to beat inflation and survive it in 2022.
Spending money is not bad, but developing bad spending habits is never a good thing. Some people make impulse purchases at the cash register, others spend way too much on coffee, and there are also those who nearly always overspend on a previously decided budget.
These are all bad spending habits, and you need to control them. Make it a point not to impulse buy things at the register or spend $6 on a cup of coffee. If you go out for groceries or shopping, stick to what you need and stay within the budget you allocated for the trip.
Another great way to control spending habits is to start using cash instead of cards. Most often, we swipe our credit or debit card for payments and never even bother looking at the bill, especially for smaller purchases.
This does not allow us to fully comprehend what we spend. Whereas when we use cash, we physically count each dollar before spending it, which helps us realize exactly how much we are spending. Moreover, you should target sales and discounts for expected expenses, like non-perishable items, and buy them ahead of time in sensible quantities.
Budgeting is the key to good personal finance, and there is literally no other way around it. You need some form of budgeting for your personal finances. Whether it's a budget binder, a spreadsheet, or a modern mobile app, start tracking your income and spending in a way that suits you.
Most importantly, you have to keep reorganizing your personal budget. Focus on your fixed and variable expenses, and figure out where you can save money month to month. Maybe you don't need that $90 subscription for cable TV anymore, or maybe you are spending too much on toilet paper.
When you maintain and reassess a personal budget each month, you'll know exactly how much money is coming in and how much is going out. This allows you to cut back on a lot of things you don't need and save a ton of money for savings, investments, or other financial goals.
Setting and achieving financial goals becomes easier when you start budgeting. In fact, these goals are what determine how you reorganize your personal budget from time to time. Figure out where you can cut back and what you can do to meet your goals.
A simple way to start beating inflation is to increase your income. This is easier said than done, but it is still achievable. Take some time to consider ways to increase your income, both active and passive income. What can you do to get a raise at work?
Maybe a short course can help boost your resume, or perhaps you can convince your boss to consider giving you a raise. You should start tracking the things you do at work and the challenges you overcome for your company so you have something to show when you ask for a raise.
On the other hand, you should consider ways to increase your passive income. Do you have a rental property or a spare car that you can rent out?
Another key tactic you should consider when learning how to beat inflation is asset allocation. It is an investment strategy whereby you try to balance the risk versus the reward of each investment or asset in your investment portfolio.
Study your portfolio closely and adjust the percentage of each asset or investment according to your financial goals, risk tolerance, and investment periods. Ultimately, the idea is to look at the big picture, i.e., your portfolio, and tweak each asset's allocation according to what you want to achieve.
In the case of inflation, you want to focus on the characteristics, assets, and investments of your portfolio that allow you to beat inflation. We will share more information about preparing and protecting your risk-affected investments ahead.
Depending on your location, taxes can take away a large chunk of your income, and saving on taxes can significantly boost your income. Of course, you must always pay your taxes and avoid penalties or tax fraud at all times, but there are legal ways to reduce taxes.
For example, you may be eligible for certain tax benefits that you are unaware of. If you run a business from your garage or home, you may be eligible to write off some property taxes. Similarly, if you use other assets for your business, you may be eligible to write off things like car payments or other business expenses.
While all relevant tax laws and information are available online for free, it is always recommended to hire and consult a good tax attorney who is familiar with your local tax laws, especially if you are a business owner.
These professionals can help you figure out tax efficiencies (the least amount of money you have to pay for taxes) legally to help you increase your overall income.
Certain commodities like metals, oil, and agricultural products are known to rise with inflation, and they are good indicators of inflation as well. Similarly, there are entities in the financial, healthcare, real estate, energy, and other sectors that rise with inflation.
Rising inflation decreases spending or purchasing power, and this can cause many industries to benefit from their holdings. Do some deep research and learn about the entities and commodities that rise with inflation. This will help you to foresee inflation rise and may also help in beating inflation.
Entities and commodities that rise with inflation are not only good indicators but also some of the best investments during inflation. You can (and should) make strategic, diversified investments in these entities and commodities to hedge inflation rise.
As with any investment, just make sure to time your investments correctly, and have a clear exit strategy beforehand. It always helps to consult your investment banker or professionals like traders or investors before you make any moves or changes to your investment portfolio.
It isn't easy or common for the average person to plan for the next 30-40 years, let alone consider their finances that far ahead. However, investing in a good retirement plan like a 401(k) or an IRA plan is a great way to ensure financial security after retirement and beat inflation in the long run.
Such retirement plans are often immune to taxes, and your employer may even match your monthly investment in a 401(k) up to a certain amount. Maximize this amount because who doesn't like free money?
Of course, you should do your own research or consult a professional, but generally, these retirement plans are an excellent way to secure your future. Over the years, you can amass enough funds in these plans to retire comfortably and not worry about rising inflation or expenses in your golden years.
Fixed-rate bonds are another great way to beat inflation. You can earn a guaranteed interest rate for the term of the bond, no matter what happens in the market. You can also opt for something called treasury inflation-protected securities (TIPSs).
TIPSs are bonds backed by the government and designed to protect investors and their purchasing power. They do this by adjusting to rising inflation and adjusting the value of the bond's principle accordingly.
At the same time, it is also important to prepare for losses in other areas of your investment portfolio and protect any investments that may get affected by rising inflation. If you have stock in entities or commodities that may drop in price, you have to consider how much you are willing to risk.
It may be that you want to hold certain stocks for the long-term because you got in quite low, and you know it will return well on your investment over time. Such long-term investments may not be as highly affected by inflation as some of your other investments.
If you think certain stocks or shares will lose value over the inflation period and result in a loss, prepare to sell them at the right time. This is a lot like asset allocation, but the key difference here is that the goal is to protect individual risk-affected investments, mainly your long-term investments, rather than strategizing to optimize your entire investment portfolio.
Of course, you always run the risk of losing all your returns from risk-affected investments if hyperinflation occurs.
The mentioned ten ways are perhaps the smartest and easiest ways to beat inflation. We recommend that you try to follow and implement as many as possible. Together, they can easily help anyone beat or survive inflation in 2022 and beyond.
There are many ways to increase your income during inflation. You can invest smartly in your employer-sponsored retirement plan, in fixed rate bonds, find ways to increase your active income, earn from passive income sources or investments, or invest in entities and commodities that rise with inflation.
Apart from any income or savings, your investments need to give you anywhere between 4%-6% return per year to beat inflation. This is not too difficult to achieve if you know how to survive inflation. Even something as simple as investing in index funds like the S&P 500 can help people beat inflation because these funds have a consistent track record of returning anywhere between 11%-12% per year on average.
Since high inflation reduces the purchasing power of a currency, it makes everything more expensive. Thus, living with high inflation requires strategic budgeting, savings, investments, and tax efficiencies. Those who fail to take such financial actions run the risk of losing their funds or falling into debt.
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