Preparing Your Finances For An Increase In Inflation

Inflation is beneficial for savers as it usually leads interest rates to rise. Despite this, Americans are growing increasingly worried about inflation, with 70% saying it’s the biggest issue in the country. This is unsurprising as the nation’s bills have increased by almost $350 per month in the last year. Financial experts predict that inflation will continue to rise this year and into the next, so it’s important you prepare for price increases now.

Plan for inflation

By Q4 of 2022, inflation will be 5.5%, according to Fannie Mae. A 3% rise is predicted for 2023. This will increase the price of goods significantly over the coming months. For example, food costs are believed to go up by between 3 and 4% by the end of the year. One way to prepare for this is to stock up on non-perishable goods now. Key things to buy include canned goods, nappies, toiletries, pasta, rice, cooking oil, and baking goods. Good investment right now is a large chest freezer which can be used to keep items such as meat, fish, frozen vegetables, loaves of bread, and bottles of milk. 

Increase your emergency fund

Just 23% of Americans have an emergency fund that could cover six months of living expenses. An emergency fund is crucial when inflation is rising as it protects you if you need to urgently pay for something that you couldn’t otherwise afford. Ideally, you should adjust how much you put into your emergency fund each month so that it’s in line with inflation. To get the most for your money, you need to put it into an account that offers a good interest rate. Certificates of deposit, savings bonds, online accounts, and high-yield reward checking accounts are good options. It can be good to know how much your emergency savings will be worth in the future. A tvm solver calculator allows you to work out the future value of any money you have. This is known as the Time Value of Money and is based on the principle that the cash you have today will be worth more in the future. It’s a good tool for planning your finances, ensuring you’re saving enough and helping with investment decisions.

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Review your budget

Knowing that inflation will rise over the coming year means it’s time to assess your budget. First, look at your incomings versus your outgoings. Identify areas where you’re spending too much, such as food, travel, and entertainment, and start thinking about what cutbacks you could make now. If you don’t think cutbacks will be enough to boost your budget, look into increasing your budget. This could involve getting a second job, renting out your driveway, selling a service, and similar.

Take on the debt now

Taking on debt when prices are rising can be worrying, but if you’re planning on taking out a mortgage or getting an auto loan, then it’s best to do it sooner rather than later. Financial experts have revealed that by the end of 2022, the interest rate on a 30-year fixed mortgage could be as high as 7.0%, while a 15-year mortgage could have an interest rate of 6.0%. At the moment, the average 30-year mortgage has an interest rate of 5.39% and a 15-year one has a rate of 4.770%. This difference equates to a lot of money, so if you’re able to get a loan now, do it. 

If you’re one of the millions of people that are worrying about inflation, you must take action quickly. By doing this, you’ll be well prepared for the future and in a better financial position than you otherwise would.

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