5 Ways to Deal with Inflation: Tips for Financial Planning in Chicago

Inflation has become a significant concern for those who do not have a financial plan that accounts for it. Because inflation is at a 40-year high of 8.5%, some commodities are experiencing inflation rates that are significantly higher than this. For example, both food and fuel have increased about 40% in price in the last year; have you noticed?


Inflation creates several problems that can throw your financial goals off course if you’re not working with a fiduciary financial advisor looking out for your best interests. 


The first is obvious; things get a lot more expensive. Did you know that inflation is also referred to as “the worst tax” because it acts as a tax? Many people think that they are getting ahead by putting money in a savings account or a CD that yields 2% per year. For example, if the annual inflation rate is 7.9%, then the real rate of return would be -5.9%. This would act like a 5.9% tax on the person. 

Because inflation has become such a major concern in American society, everyone should start using strategies that can help them defend against it, especially tax planning. Here are three strategies that anyone can use to deal with inflation. 


1. Focus on Needs Versus Wants

If you don’t have a budget, now is an excellent time to track your income and expenses. This can provide some valuable insight to help you save money each month. What wants can you cut out of your budget?


2. Why You Should Avoid Traditional Bonds

In a 2020 newsletter to shareholders, Warren Buffet said, “bonds are not the place to be these days.” The problem with bonds is that many of them only yield a couple of percent per year, which is significantly lower than the inflation rate.

For example, investing in a bond with a 2% APY is equivalent to losing 5% of your money per year if there is 7% inflation. 

In other words, bonds are stable and secure in that they guarantee a fixed yield because the yields are less than the rate of current rates of inflation. This means that if you want to protect your money and generate profit that matters, your investments have to generate yields that are higher than the rate of inflation. Currently, that means your assets have to generate more than 8.5% yields per year. 


3. Invest in Real Estate if You Can

Growing home sale graph. 3d render

Real estate has protected families from inflation for generations because the housing market tends to rise significantly in times of inflation. This has happened dramatically in the last two years, as housing prices have surged and have yet to slow down. 

If you already own real estate, great! But it doesn’t mean that you can’t buy more. If you don’t already own real estate, then you should consider investing in some to help you preserve your purchasing power and defend against inflation. If you can’t afford a house, consider investing in more affordable options like a condo or apartment. 


4. Treasury Inflation-Protected Securities

Treasury Inflation-Protected Securities, commonly referred to as TIPS, are a common investment to fight rising inflation. As measured by the CPI (Consumer Price Index), the principal of TIPS rises with inflation and falls with deflation. When TIPS mature, you pocket the original principal or adjusted principal, whichever is greater. 


5. Invest in Yourself 

Investing in yourself with man using a laptop in a modern gray chair

To survive and thrive in an inflationary environment, one of the best investments you can make is yourself. You can cash in on your gifts and increase your earning potential to insulate you from some of the adverse effects of inflation. You can continue your education, develop new skills, get a mentor, beef up your resume, apply for a higher-paying job, or apply for that promotion. 

The higher your earning capabilities, the better off you are. This can ensure you don’t tap into funds reserved for your retirement. 

If you’re nearing retirement, consider pushing out your retirement date. You can also wait to take out Social Security benefits as long as possible to have more waiting for you when you need it most. Or, consider what talents and or hobbies you can turn into a small business. 

Financial planning and life stages look different for every investor. That’s why it pays to get professional advice from a financial advisory firm that serves as a one-stop shop. You deserve to feel confident that your account requests are handled effectively. 


Take Control of Your Financial Future

The ultimate way to invest in yourself is to hire a CERTIFIED FINANCIAL PLANNER™ to help you combat inflation and beyond. Take steps to start protecting you and your family from inflation, as it can and should be accounted for through holistic financial planning

People who fail to protect themselves in a bull market could find it more challenging soon to afford the basics. Your financial life may look different as you may still be trying to bounce back from the pandemic. We are here to help you get back on course.


Ask our team at SGL which inflation hedges can help you diversify your investment portfolio in a volatile market. 


As the Fed tries to rein in inflation by raising interest rates, a silver lining tells us that inflation will level out—we just don’t know when. The best thing you can do is be financially prepared for any market condition. If you need help shielding your nest egg from inflation, call our team at SGL today.