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How To Combat Inflation

Inflation is all the talk nowadays. Thanks to the combination of monetary stimulus and fiscal stimulus, our economy is flush with cash. Then you mix in the ongoing COVID pandemic which has hampered the supply of new goods, and you get the perfect recipe of too much demand chasing too little supply. It's Economics 101 as to why we are seeing price increases everywhere.

It can definitely be difficult to navigate an inflationary environment. It becomes even more critical to be smart about your spending and money habits. It is exactly in times like these that the Don't Need Much Money lifestyle comes in handy. Here are some tips to help you get through this:

  • Save Save Save - earning money and then saving that money is absolutely the most critical thing to do to navigate an inflationary environment. Really the only thing that can trip you up is if you have more money going out the door than coming in, so avoid this scenario at all costs. 

  • Simplify your lifestyle - by looking carefully at the goods you consume and the services you use, make an effort to strip down to the necessities. This will have the double benefit of helping you save money while making you less susceptible to price increases if there are fewer things you use that can increase in price.

  • Buy in bulk - bulk buying and smart shopping is magnified in an inflationary environment. Take the extra effort to seek out a good deal but don't take it to the extreme and hoard. Buy enough to have a realistic base stock of items that you will personally consume. There is nothing worse than people trying to make a quick buck by creating shortages in critical items then reselling those items.

  • Try to be patient for anything high demand - our supply chain is in a state of flux due to the pandemic. It started with toilet paper and now is hitting major items like cars. It's hard not to focus on the news reports of shortages and want to secure inventory yourself. The problem is you are probably acting out of fear. If you really studied your desires and emotions, you can probably get away with waiting. Also, price increases caused by hysteria are typically not permanent so patience will usually pay off.

  • Watch Interest Rates - interest rates play a major role in inflation. You should keep an eye on both the interest rates you can earn on your savings but also the interest rates you can borrow money at. Both are likely to go up. The goal is to borrow at low fixed rates (like a home mortgage) and earn/invest at rates that are higher than your cost of borrowing. Right now with asset prices so historically elevated, it is very difficult to find investments that are keeping up with inflation and the cost of borrowing. So again you are likely better off being patient, keeping your money liquid, and waiting for investment rates to improve (by waiting for lower asset prices).

  • Get creative - change is the one constant in an inflationary environment. Those that can adapt best to that change will navigate the best. And adapting to change requires creativity and ingenuity. Try to learn new skills that can earn you more money or save you expenses. Find ways to create community and accomplish things at a local level to rely less on government and corporations. And build stronger relationships with your family to make sure communication is strong so any worries or issues can be addressed.
Follow these tips and you will certainly be more prepared than most for this inflationary environment.