How to Combat Inflation: 4 Smart Strategies

Believe it or not, right now inflation rates in the US are relatively low — in August 2024, the annual inflation rate was 2.9% , the lowest since March 2021. But prices remain very high, over 20% more than in February 2020, when a recession linked to the pandemic began. So, despite the lower inflation rates overall, it can feel as if inflation is soaring. 

The result is that most Americans are feeling the impact of rising prices more than they have in a long time, whether you’re paying for a cheeseburger at your favorite restaurant, the oil change your car needs or clothes for your growing kids. That means many of us are wondering what to do during times of inflation. How can you save money when everything seems so expensive? Where should you put cash during inflation? How do you deal with the cost of living? Is it wise to start investing during inflation? 

Some simple strategies can help you combat rising prices and make sound money decisions, regardless of whether the economy is inflating at an accelerated rate. Here are four strategies that can help you protect your bottom line. 

1. Figure Out How Much Effect Inflation Is Having on You

If the news about inflation rates come as a surprise, it’s probably because your personal inflation rate is different from the national rate. We tend to measure inflation based on the prices we have to pay, and that makes sense: if you need to buy a car, feed a large family or use a lot of heat or air conditioning, you may feel the sting more than others. To understand exactly how much inflation is affecting you, compare your spending from the first three months of 2021 to those months in 2022. Learn more about the effects of inflation.

1. Look for Low-Impact Ways to Trim Your Spending

In terms of how to combat inflation, you may need to cut out some of the things you like to purchase and enjoy. But before you take that step, see if you can reduce expenses that you haven’t considered in a while.

For example, you may qualify for auto or home insurance discounts. Perhaps there’s a lower-cost internet package that meets your family’s needs. Better planning when you shop for groceries and cooking at home can trim your food budget. Apps such as Rocket Money can help you locate subscriptions that you’re paying for but have forgotten about. Cutting costs in these areas can help ensure that you stay on track with contributions to your retirement accounts. These personal finance basics are a good resource to get your finances on track.   

1. Diversify Your Income

When the economy is struggling, your income might not be as stable as it is in boom times. You could experience cuts in your hours, a furlough or even a layoff. If you’re self-employed, your customers may be feeling their own squeeze and spending less, reducing your revenue. Having additional sources of income can give you some financial cushion to fall back on during hard times.

Depending on the time you have available, your skills and interests, and your financial situation, you could look for additional income streams. Maybe you can tutor, walk dogs or help people declutter. You might be interested in driving for a rideshare company or a delivery service. Or perhaps you could rent out an extra bedroom or parking space.  

Ideally, you’ll use this extra income to build up your emergency savings so it’s there for you if your primary source of income fluctuates. If you feel your emergency fund is sufficient, you could invest this money in your retirement accounts or in more inflation-proof investments, such as money market funds. 

1. Stick With Your Investment Plan

When it comes to investment strategies to combat inflation, you probably have your retirement savings and any other investments distributed between stocks, bonds and cash. If you’re seeing your investments lose value, you may get nervous and be tempted to make changes. But don’t succumb to panic. If you have a well-balanced portfolio and you’re not close to retirement age, you may want to stick with your plan. That said, falling stock prices could put your plan out of balance, so you may need to reallocate assets to stay on track. A financial advisor can help you make a sound decision.

Is Your Financial Plan Inflation-Proof?

Connect with a Farm Bureau financial advisor to review your financial needs and create a strategy for reaching your financial goals.