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Understanding 2022 Inflation - Steps to Ensure Financial Stability - Part 3

By Aniket Mittal


In the last few years, prices of general goods and services have skyrocketed. Although many of us tend to blame the pandemic, the United States’ 2022 inflation has multiple factors. To understand more about the current economic situation and the likelihood of a recession, check out Part 2 to this article.

General Steps To Perform During Inflation:

1) Cutting Expenses

During inflation, as prices of goods and services skyrocket, expenses also increase. Consider cutting your mortgage payments or rent in order to reduce expenses. Consider opting for cheaper foods and reducing the intake of expensive cuisine such as seafood and meat. Maybe opt out of an expensive purchase such as a car or renovation. Don’t waste gas for unnecessary trips. Consider reducing the use of certain utilities such as water, gas and electricity. All of these are great methods of cutting expenses during inflation and improving financial stability.

In our Budgeting and Mathematical Finance Article, we mentioned the 50/30/20 rule where 50% of your income goes towards needs such as food, rent, and taxes, 30% of your income goes towards wants such as new apparel, devices, etc. and 20% goes towards savings. During inflation, your needs may surpass 50% and possibly reach 60-70%. As a result, it’s important to find methods to reduce the costs of your needs and wants to follow your budget plan.

In order to have optimal personal finance and financial stability, try to follow your current budget plan to your best ability. This may involve making changes to your current lifestyle. If this may become too difficult, feel free to make edits to your budget plan as long as you have a favorable balance of expenses and assets / savings.

2) Mortgage / Debt

During inflation, interest rates also soar while your income remains relatively stagnant. As a result, it’s often smarter to reduce your current debt and/or pay off smaller loans, such as those on cars. Although this can be a relatively difficult process, especially during high inflation, recommends strategies such as debt-consolidation personal loans, zero-interest balance-transfer cards, cash-out home refinance loans, and consulting with financial advisors and nonprofits.

Although paying of mortgage / debt can be difficult, it can often be a strategic decision especially if inflation remains long-term. Additionally, another option you can take is refinancing you loan so the effect of inflation is less pronounced. Overall, in order to maintain good financial stability, ensure that debt doesn’t place too much of a burden on your credit score / financial situation.

3) Ask For A Raise

Often, you might be afraid to ask a raise from your employer. You might worry negative consequences or fear a negative answer. However, this is simply not the case. The worst outcome from this situation is simply a “no”. In this worse case, you aren’t at harm whatsoever and instead are just at your previous situation. Nevertheless, most employers are understanding of your situation and may actually give you a raise. It never hurts to ask, so take advantage and prioritize yourself.

4) Changing Investment Strategies

Often, while we may think of high risk → high reward, especially during inflation, it might be strategic to invest in more stable stocks and assets. In fact, often, you can benefit during inflation. For example, real estate prices often soar during recessions as the price of goods increase. Additionally, stocks that may be negatively affected in the short-run may be beneficial to you in the long run. For example, although the airline industry may have a low stock right now, it might recover as more people travel post-pandemic. Be strategic about the stocks that you invest in and ensure that you invest in different assets to stay ahead of inflation.

5) Don’t Tap Into Your Emergency Reserve Unless You Absolutely Need To

Although your emergency fund is supposed to be for poor economic situations, don’t tap into this reserve unless you absolutely need to. Often, many people simply want to continue their current extravagant lifestyle and don’t need the additional money. However, if you have done all you can, your emergency fund is for situations such as high inflation and possible unemployment so don’t hesitate to use it. Be cognizant of how you use your emergency fund and plan your finances so you and your family have a good financial future post-retirement.

6) BUDGET!!!

Budgeting is key towards maintaining good financial security. Often, without proper planning and budgeting, we tend to make irrational decisions and purchases that hinder financial security. As a result, budgeting techniques such as opening new accounts and following the 50/30/30 rule are essential to bolstering your financial security, especially during inflation. Usually, inflation can be an eye-opener towards budgeting more and ensuring you’re prepared for the worst. FOr more information on budgeting, check out our article!

The info provided is a culmination / extension of the steps and advice from, Forbes and FNBO.

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